What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-26 compared with 2020-02-27 · 202 added, 265 removed, 326 unchanged (59% of the section changed)

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“Basis of Presentation and Summary of Significant Accounting Policies” in our audited consolidated financial statements included elsewhere within this Annual Report on Form 10-K for additional information.

Gross domestic product (“GDP”) increased 2.1% during the fourth quarter of 2019 due to increases in federal, state and local government spending, personal consumption expenditures, residential fixed investments, and exports.

Non-residential fixed business investment, a leading indicator of RevPAR performance, declined 1.5% during the quarter.

Despite this decline, RevPAR for our comparable hotels increased 2.0% for the year ended December 31, 2019.

Our ability to experience continued RevPAR growth in 2020 depends on various factors, including the strength of group and transient demand and the timing of completion of renovation projects at several of our hotels.

In addition, RevPAR growth and profitability will depend on several macroeconomic factors, including corporate profitability, consumer confidence, the unemployment rate (and resulting increase in wages) and GDP growth, coupled with supply growth and increased popularity of online booking services and short-term lodging websites, as well as certain conditions beyond our control that shape public perception of travel, including the 2019 Novel Coronavirus.

We may experience a negative impact on 2020 RevPAR growth arising from the 2019 Novel Coronavirus outbreak but the full extent of such impact is not yet known.

Recent Events

On September 18, 2019, pursuant to the terms and subject to the conditions set forth in the Merger Agreement, dated as of May 5, 2019, by and among Park Parent, PK Domestic, Merger Sub and Chesapeake.

Chesapeake merged with and into Merger Sub.

Our Operating Company continues to directly or indirectly, hold all of our assets and conduct all of our operations.

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

In November 2019, we and the other owners of the entity that owns the Conrad Dublin closed on the sale of our ownership interests in the entity that owns the hotel for gross proceeds of approximately $128 million.

Our pro-rata share of the gross proceeds was approximately $61 million.

In December 2019, we sold the Ace Hotel Downtown Los Angeles for gross proceeds of $117 million and the Le Meridien New Orleans for gross proceeds of $84 million.

Refer to Note 3:

“Acquisitions, Dispositions and Assets Held for Sale” in our audited consolidated financial statements included elsewhere within this Annual Report on Form 10-K for additional information.

Additionally, in December 2019, we terminated the ground lease on the Hilton Sheffield Hotel.

Refer to Note 4:

“Property and Equipment” in our audited consolidated financial statements included elsewhere within this Annual Report on Form 10-K for additional information.

The proceeds from the sales of the Conrad Dublin, Ace Hotel Downtown Los Angeles and Le Meridian New Orleans were used to pay down $230 million of debt.

Refer to Note 7:

“Debt” in our audited consolidated financial statements included elsewhere within this Annual Report on Form 10-K for additional information.

In February 2020, we sold the Hilton São Paulo Morumbi for gross proceeds of approximately $118 million and the Embassy Suites Washington DC Georgetown for gross proceeds of approximately $90 million.

Upon the sale of the Hilton São Paulo Morumbi , we no longer have any international hotels in our portfolio.

COVID-19 Effect on Our Business

The global outbreak of a novel strain of coronavirus and the disease it causes (“COVID-19”) have had and continue to have a significant effect on the lodging industry and our company.

We cannot presently determine the extent or duration of the overall operational and financial effects that COVID-19 will have on our company.

The effects of COVID-19, including related government restrictions, border closings, quarantining, “shelter-in-place” orders and “social distancing,” have had and continue to have a significant adverse effect on the hospitality industry, including our business, and have contributed to a significant decrease in business and consumer spending, with a particularly dramatic effect on travel and hospitality spending.

In March and April 2020, travel restrictions and mandated closings of non-essential businesses were imposed, which resulted in temporary suspensions of operations at certain of our hotels, the majority of which have now reopened, and significantly reduced capacity at the remainder of our hotels.

Temporary closings of restaurants and hotels across entire regions also contributed to severely reduced overall lodging demand.

There continues to be significant cancellations of existing reservations, including the vast majority of group business and events throughout the first-half of 2021 and significant reductions in new reservations.

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

Changes in our monthly and quarterly 2020 pro-forma metrics, which exclude results from property dispositions and include results from property acquisitions , as compared to the same periods in 2019, and pro-forma occupancy are as follows:

Pro-forma ADR

Pro-forma Occupancy

Pro-forma RevPAR

Pro-forma Occupancy

We believe that imposed or re-imposed government restrictions and the economic contraction associated with COVID-19 will continue to significantly affect our business.

We believe demand will remain significantly reduced as long as mandatory travel restrictions, “social distancing,” and cost-saving measures, such as the postponing or cancelling of non-essential business travel, remain in place.

However, the announcements of COVID-19 vaccines in November 2020 and the reports of their initial effectiveness appear to have resulted in an improvement in traveler and general consumer sentiment.

Although we were able to recommence operations at reduced capacity at most of our previously suspended hotels by the end of 2020, there remains considerable uncertainty as to both the time it will take to see travel and demand for lodging and travel-related experiences to increase and the long-term impacts on consumer attitudes to travel.

We cannot predict whether our reopened hotels will be forced to suspend operations again or decrease capacity in the future.

We believe that the distribution of COVID-19 vaccines will eventually ease government regulation and decrease the number of COVID-19 cases, resulting in an improvement in business and other consumer preferences for travel.

Due to the effects of COVID-19, during the year ended December 31, 2020, we recognized $607 million of impairment losses for goodwill and $90 million of impairment losses primarily related to one of our hotels resulting from a significant decline in market value.

Further, economic uncertainty generally will make it more difficult to execute on our external growth strategy.

These factors lead us to believe that our operating results will continue to be adversely affected by COVID-19 through at least the first-half of 2021.

We and our hotel managers have taken various actions to mitigate the effect of COVID-19 on our business including cost saving initiatives to reduce costs at our hotels.

During the first quarter of 2020, we temporarily suspended operations at 38 of our 60 hotels, deferred approximately $150 million of the $200 million in capital expenditures previously budgeted for 2020, reducing expected 2020 capital spending to approximately $50 million, suspended dividend payments following the payment of the first quarter 2020 dividend, which was paid on April 15, 2020, and drew on our Revolver as a precautionary measure to increase liquidity and preserve financial flexibility in light of the current uncertainty resulting from the COVID-19 pandemic.

In May 2020, despite headwinds in the debt market, Park Intermediate Holdings LLC (our “ Operating Company”), PK Domestic Property LLC (“PK Domestic”) and PK Finance Co-Issuer Inc.

(“PK Finance”) issued an aggregate of $650 million 7.500% senior secured notes due 2025 (“2025 Senior Secured Notes”).

We used $219 million of the net proceeds to partially repay the Revolver and $69 million of the net proceeds to partially repay the term loan due December 2021 (“2016 Term Loan”).

We also repaid an additional $100 million of the Revolver with existing cash.

In September 2020, we issued an aggregate of $725 million 5.875% senior secured notes due 2028 (“2028 Senior Secured Notes”).

Net proceeds from the 2028 Senior Secured Notes offering were used to repay the 2016 Term Loan in full and to repay $80 million of our outstanding balance under the Revolver, which may be redrawn.

Additionally, we reduced budgeted 2021 capital expenditures to approximately $40 million.

Since originally suspending operations, we have commenced the phased reopening of 28 of our hotels at limited capacity.

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

The status of our hotels as of February 26, 2021 is as follows:

Number of Hotels

Consolidated Open

Consolidated Suspended

Total Consolidated

Unconsolidated Open

We cannot predict whether we will be able to resume operations at any of our other suspended hotels or whether our reopened hotels will be forced to suspend operations again in the future.

However, we currently expect to open the remaining 10 suspended hotels by the end of the second quarter of 2021.

We continue to proactively pursue alternative sources of revenue from applicable government authorities and hospitals, such as providing temporary lodging for first responders, other medical personnel, military personnel, displaced guests and residents of communities where our hotels are located, colleges and universities, and professional sports associations.

In addition, the operating environment for us and our hotel managers could remain challenging if the current economic contraction extends beyond the lifting of government restrictions and reopening of our hotels.

Historically, economic indicators such as GDP growth, corporate earnings, consumer confidence and employment are highly correlated with lodging demand, and although these factors have seen improvement over the last 6 months, these metrics remain significantly below levels prior to the COVID-19 pandemic.

The exact impact, magnitude and duration of the economic contraction is unknown at this time.

We expect the significance of the COVID-19 pandemic, including the extent of its effect on our financial and operational results and the economic contraction, to be dictated by, among other things, its duration, the success of efforts to contain it, efficacy, availability and deployment of vaccinations and other treatments to combat COVID-19 and the effect of actions taken in response (such as travel advisories and restrictions and social distancing), including the extent and duration of such actions.

For instance, recent government action to provide substantial financial support to affected industries could provide helpful assistance to the travel and hospitality industry, including our operators.

However, we cannot predict the manner in which such benefits or any of the other benefits described herein will be allocated or administered and we cannot assure you that we will be able to access such benefits in a timely manner or at all.

The extent and duration of the effects of COVID-19 are not yet clear.

Despite cost reduction initiatives, we do not expect to be able to fully, or even materially, offset revenue losses from the COVID-19 pandemic.

In addition, as states and cities have begun to lift quarantines, "shelter in place" orders and other similar restrictions, the timing and approach differs in different locations and we cannot predict whether our reopened hotels will be forced to suspend operations again in the future.

These uncertainties make it difficult to predict operating results for our hotels for 2021.

Therefore, there can be no assurances that we will not experience further declines in hotel revenues or earning at our hotels.

For more information, see “Item 1A.

Risk Factors” included in this Annual Report on Form 10-K.

Principal Components of and Factors Affecting Our Results of Operations

Revenues from our hotels are primarily derived from two categories of customers:

transient and group, which account for approximately two thirds and one third, respectively, of our rooms revenue.

transient and group, which historically have accounted for approximately two thirds and one third, respectively, of our rooms revenue.

Transient guests are individual travelers who are traveling for business or leisure.

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As a result, occupancy affects all components of revenues from our hotels.

Due to the effects of COVID-19, we have experienced a greater shift to transient business as a result of the cancellation or postponement of business conferences and other group events.

Principal Components

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Also includes tenant leases and other rental revenue.

Represents revenue related to our laundry business and support services we provide to Hilton Grand Vacations (“HGV”) timeshare properties that have a presence within or adjacent to certain of our hotels, which include cost reimbursements for the costs of providing housekeeping, landscaping, general maintenance and other services plus a fee representing a percentage of cost reimbursements.

Primarily related to support services we provide to Hilton Grand Vacations (“HGV”) timeshare properties that have a presence within or adjacent to certain of our hotels, which include cost reimbursements for the costs of providing housekeeping, landscaping, general maintenance and other services plus a fee representing a percentage of cost reimbursements.

Also included, revenue from our laundry business prior to permanent suspension of operations in 2020.

Factors Affecting our Revenues

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Leading indicators of demand include gross domestic product, non-residential fixed investment and the consumer price index.

Declines in consumer demand due to adverse general economic conditions, reductions in travel patterns, lower consumer confidence, outbreaks of pandemic or contagious diseases, including the 2019 Novel Coronavirus, and adverse political conditions can lower the revenues and profitability of our hotels.

Declines in consumer demand due to adverse general economic conditions, reductions in travel patterns, lower consumer confidence, outbreaks of pandemic or contagious diseases, and adverse political conditions can lower the revenues and profitability of our hotels.

Further, competition for guests and the supply of services at our hotels affect our ability to sustain or increase rates charged to customers at our hotels.

As a result, changes in consumer demand and general business cycles have historically subjected and could in the future subject our revenues to significant volatility.

In addition, leisure travelers make up the majority of our transient demand.

In addition, leisure travelers currently make up the majority of our transient demand.

Therefore, we will be significantly more affected by trends in leisure travel than trends in business travel.

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These costs include labor and other costs associated with other ancillary revenue, such as parking, telecommunications, golf course and spa, as well as labor and other costs associated with administrative departments, sales and marketing, repairs and minor maintenance and utility costs.

Additionally, these costs include franchise fees and are generally computed as a percentage of rooms revenues.

Additionally, these costs include franchise fees and are generally

computed as a percentage of rooms revenues.

Refer to Item 1:

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“Business – Our Principal Agreements,” included elsewhere in this Annual Report on Form 10-K for additional information.

Casualty (gain) loss and impairment loss, net.

Casualty losses are expenses that represent losses incurred resulting from property damage or destruction caused by any sudden, unexpected or unusual event such as a hurricane.

Casualty gains are insurance proceeds for property damage claims that are in excess of any associated impairment loss recognized and clean-up and recovery costs incurred, less any insurance deductible.

Impairment loss and casualty (gain) loss, net.

Impairment losses are non-cash expenses that are recognized when circumstances indicate that the carrying value of a long-lived asset is not recoverable.

An impairment loss is recognized for the excess of the carrying value over the fair value of the asset.

Casualty losses are expenses that represent losses incurred resulting from property damage or destruction caused by any sudden, unexpected or unusual event such as a hurricane.

Depreciation and amortization .

These are non-cash expenses that primarily consist of depreciation of fixed assets such as buildings, furniture, fixtures and equipment at our hotels and certain assets from our laundry facilities, as well as amortization of finite lived intangible assets.

These are non-cash expenses that primarily consist of depreciation of fixed assets such as buildings, furniture, fixtures and equipment at our hotels, as well as amortization of finite lived intangible assets.

Corporate general & administrative.

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These costs include expenses associated with our hotel acquisitions.

These costs include expenses for our laundry business and costs to provide support services to certain HGV timeshare properties.

These costs include costs to provide support services to certain HGV timeshare properties and expenses for our laundry business.

Factors Affecting our Costs and Expenses

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Occupancy represents the total number of room nights sold divided by the total number of room nights available at a hotel or group of hotels.

Room nights available to guests have not been adjusted for suspended or reduced operations at certain of our hotels as a result of COVID-19.

Occupancy measures the utilization of our hotels’ available capacity.

Management uses occupancy to gauge demand at a specific hotel or group of hotels in a given period.

Occupancy levels also help us determine achievable Average Daily Rate (“ADR”) levels as demand for rooms increases or decreases.

Occupancy levels also help us determine achievable ADR levels as demand for rooms increases or decreases.

Average Daily Rate

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Revenue per Available Room

Revenue per Available Room (“RevPAR”) represents rooms revenue divided by the total number of room nights available to guests for a given period.

RevPAR represents rooms revenue divided by the total number of room nights available to guests for a given period.

Room nights available to guests have not been adjusted for suspended or reduced operations at certain of our hotels as a result of COVID-19.

We consider RevPAR to be a meaningful indicator of our performance as it provides a metric correlated to two primary and key factors of operations at a hotel or group of hotels:

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RevPAR is also a useful indicator in measuring performance over comparable periods for comparable hotels.

References to RevPAR, ADR and occupancy are presented on a comparable basis and references to RevPAR and ADR are presented on a currency neutral basis (prior periods are reflected using current period exchange rates), unless otherwise noted.

References to RevPAR and ADR are presented on a currency neutral basis (prior periods are reflected using current period exchange rates), unless otherwise noted.

Comparable Hotels Data

We present certain data for our hotels on a comparable hotel basis as supplemental information for investors.

Historically, we have presented certain data for our hotels on a comparable hotel basis as supplemental information for investors.

We define our comparable hotels as those that:

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and (ii) have not sustained substantial property damage or business interruption, have not undergone large-scale capital projects or for which comparable results are not available.

We present comparable hotel results to help us and our investors evaluate the ongoing operating performance of our comparable hotels.

2019 Comparable Hotels

Of the 55 hotels that we consolidated as of December 31, 2019, 38 hotels have been classified as comparable hotels.

Due to the effects of business interruption from Hurricane Maria at the Caribe Hilton in Puerto Rico during the first half of 2019, the results from that property were excluded from our comparable hotels.

Our comparable hotels as of December 31, 2019 also excludes 18 hotels acquired through the Merger (two of which were subsequently sold), one hotel returned to the lessor after the expiration of the ground lease in December 2018, one hotel returned to the lessor upon early termination of the ground lease in December 2019, and five consolidated hotels that were sold in 2019.

Comparable Hotel Operating Statistics

The following table represents the key hotel operating statistics for our comparable hotels for the years ended December 31, 2019 and 2018.

This table includes information from all of the comparable hotels we owned as of December 31, 2019.

Year Ended December 31,

Comparable RevPAR

Comparable Occupancy

Comparable ADR

We presented comparable hotel results to help us and our investors evaluate the ongoing operating performance of our comparable hotels.

However, given the significant effect of COVID-19 on most of our hotels and the lack of comparability to prior periods, we do not believe this supplemental information is useful to us or our investors at this time.

Under “Results of Operations” below, we have provided information on the effects from acquisitions, dispositions and other factors to our results of operations for the year ended December 31, 2020 as compared to the year ended December 31, 2019 .

Change from other factors primarily relates to the effects of COVID-19.

Non-GAAP Financial Measures

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EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA

EBITDA, presented herein, reflects net income excluding depreciation and amortization, interest income, interest expense, income taxes and also interest expense, income tax and depreciation and amortization included in equity in earnings from investments in affiliates.

EBITDA, presented herein, reflects net income (loss) excluding depreciation and amortization, interest income, interest expense, income taxes and also interest expense, income tax and depreciation and amortization included in equity in earnings (losses) from investments in affiliates.

Adjusted EBITDA, presented herein, is calculated as EBITDA, further adjusted to exclude:

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

Gains or losses on foreign currency transactions;

Transition expense related to our establishment as an independent, publicly traded company;

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

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Share-based compensation expense;

Casualty gains or losses and impairment losses;

Impairment losses and casualty gains or losses;

Other items that we believe are not representative of our current or future operating performance.

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Because of these limitations, EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA should not be considered as discretionary cash available to us to reinvest in the growth of our business or as measures of cash that will be available to us to meet our obligations.

The following table provides the components of Hotel Adjusted EBITDA:

Year Ended December 31,

(in millions)

Comparable Hotel Adjusted EBITDA

Non-comparable Hotel Adjusted EBITDA

Hotel Adjusted EBITDA

Based on our 2019 comparable hotels as of December 31, 2019.

The following table provides a reconciliation of Net income to Hotel Adjusted EBITDA:

The following table provides a reconciliation of Net (loss) income to Hotel Adjusted EBITDA:

Year Ended December 31,

(in millions)

Net (loss) income

Depreciation and amortization expense

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Interest expense

Income tax expense

Income tax (benefit) expense

Interest expense, income tax and depreciation and

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Gain on sale of investments in affiliates ( 1)

Loss on foreign currency transactions

Transition expense

Acquisition costs

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Share-based compensation expense

Casualty (gain) loss and impairment loss, net

Impairment loss and casualty (gain), net

Other items ( 2)

Adjusted EBITDA

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Hotel Adjusted EBITDA

Included in other gain, net.

Included in other (loss) gain, net.

For the years ended December 31, 2020 and 2019, includes a $12 million and $7 million reserve, respectively, related to ongoing claims in connection with our obligation to indemnify Hilton under the spin-off agreements.

Refer to Note 15:

“Commitments and Contingencies” in our audited consolidated financial statements included elsewhere within this Annual Report on Form 10-K for additional information.

Includes other revenues and other expenses , non-income taxes on TRS leases included in other property-level expenses and corporate general and administrative expenses .

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We present Nareit FFO attributable to stockholders and Nareit FFO per diluted share (defined as set forth below) as non-GAAP measures of our performance.

We calculate funds from operations (“FFO”) attributable to stockholders for a given operating period in accordance with standards established by the National Association of Real Estate Investment Trusts (“Nareit”), as net income or loss attributable to stockholders (calculated in accordance with U.S.

We calculate funds from (used in) operations (“FFO”) attributable to stockholders for a given operating period in accordance with standards established by the National Association of Real Estate Investment Trusts (“Nareit”), as net income (loss) attributable to stockholders (calculated in accordance with U.S.

GAAP), excluding depreciation and amortization, gains or losses on sales of assets, impairment, and the cumulative effect of changes in accounting principles, plus adjustments for unconsolidated joint ventures.

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We adjust Nareit FFO attributable to stockholders for the following items, which may occur in any period, and refer to this measure as Adjusted FFO attributable to stockholders:

Gains or losses on foreign currency transactions;

Transition expense related to our establishment as an independent, publicly traded company;

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

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Other items that we believe are not representative of our current or future operating performance.

The following table provides a reconciliation of net income attributable to stockholders to Nareit FFO attributable to stockholders and Adjusted FFO attributable to stockholders:

The following table provides a reconciliation of net (loss) income attributable to stockholders to Nareit FFO attributable to stockholders and Adjusted FFO attributable to stockholders:

Year Ended December 31,

(in millions)

Net income attributable to stockholders

Net (loss) income attributable to stockholders

Depreciation and amortization expense

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Gain on sale of investments in affiliates ( 1)

Impairment loss

Equity investment adjustments:

Equity in earnings from investments in affiliates

Equity in losses (earnings) from investments in affiliates

Pro rata FFO of investments in affiliates

Nareit FFO attributable to stockholders

Loss on foreign currency transactions

Casualty gain, net

Transition expense

Acquisition costs

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Adjusted FFO per share - Diluted ( 3)

Included in other gain, net.

For 2019, includes $15 million of income tax expense associated with the sales of hotels in 2019.

For 2018, includes $13 million of income tax expense primarily attributable to an additional built-in gain deferred tax liability as a result of the enactment of the Tax Cuts and Jobs Act, which prohibits the sale of ancillary hotel furniture, fixtures and equipment to be included in a like-kind exchange.

Per share amounts are calculated based on unrounded numbers and are calculated independently for each period presented.

Included in other (loss) gain, net.

Includes $37 million and $15 million of tax expense associated with hotels sold during 2020 and 2019, respectively.

Per share amounts are calculated based on unrounded numbers.

Results of Operations

The following items have had a significant effect on the year-over-year comparability of our operations and are further discussed in the sections below:

Dispositions:

During the years ended December 31, 2019 and 2018, we sold 7 hotels (including two hotels acquired as part of the Merger) and 12 consolidated hotels, respectively.

Additionally, we no longer lease the Hilton Sheffield Hotel and the Hilton Chicago O’Hare as of December 2019 and 2018, respectively.

The results of operations during our period of ownership of these hotels are included within non-comparable revenues and operating expenses.

Acquisitions:

On September 18, 2019, we acquired 18 hotels through the Merger.

We subsequently sold two of the acquired hotels, which are now included as part of our disposed portfolio.

The results of operations during our period of ownership of the remaining 16 hotels are included within non-comparable revenues and operating expenses.

Hurricane Maria:

As a result of Hurricane Maria in September 2017, the Caribe Hilton sustained significant damage and was closed for all of 2018 and reopened on May 15, 2019.

The increase in hotel revenues and expenses for the year ended December 31, 2019 compared to the same period in 2018 as a result of the closure in 2018 are included within non-comparable revenues and operating expenses.

Year ended December 31,

(in millions)

Comparable rooms revenue

Non-comparable rooms revenue

Total rooms revenue

Based on our 2019 comparable hotels as of December 31, 2019.

Comparable rooms revenue increased $31 million during the year ended December 31, 2019, compared to the same period in 2018 primarily as a result of an increase in comparable hotel RevPAR of 2.0%.

The increase in RevPAR during the year ended December 31, 2019 was primarily due to an increase in group and contract revenues of 7.1% and 8.9%, respectively, partially offset by a decrease in transient revenue of 1.2%.

The increase in group and contract revenue was primarily a result of an increase in demand and rate.

During the year ended December 31, 2019, the overall increase in RevPAR for our comparable hotels was primarily a result of increases at our Hawaii and San Francisco hotels.

Our Hawaii hotels experienced an increase in RevPAR of 5.5% during the year ended December 31, 2019, primarily due to an increase in both group and transient business at the Hilton Waikoloa Village which previously experienced disruption caused by the 2018 volcanic activity on the Big Island beginning in May of 2018 as well as an increase in group business at the Hilton Hawaiian Village Waikiki Beach Resort.

San Francisco benefited primarily from a combined 24.4% increase in group revenue at the Hilton San Francisco Union Square and Parc 55 San Francisco.

Additionally, RevPAR at our Hilton Santa Barbara Beachfront Resort during the year ended December 31, 2019 increased 19.5% from an increase in transient business following the renovation and repositioning of the hotel completed in April 2018.

The overall increase in RevPAR for our comparable hotels was partially offset by declines in RevPAR at our New York and Chicago hotels.

The decline in RevPAR in New York was primarily attributable to a decrease in transient business at the New York Hilton Midtown.

The decline in RevPAR at our Chicago hotels was primarily attributable to decreases in transient rate as well as group business at the Hilton Chicago resulting from fewer citywide room nights.

Additionally, renovation displacement at The Reach, A Waldorf Astoria Resort, which underwent a conversion to a Curio branded hotel, resulted in a RevPAR decline of 26.6%.

Non-comparable rooms revenue increased $24 million during the year ended December 31, 2019 , primarily as a result of an increase of $105 million contributed by the hotels acquired through the Merger coupled with an increase of $15 million from the re-opening of the Caribe Hilton, partially offset by a decrease of $96 million as a result of our property dispositions.

Food and beverage

Year ended December 31,

(in millions)

Comparable food and beverage revenue

Non-comparable food and beverage revenue

Total food and beverage revenue

Based on our 2019 comparable hotels as of December 31, 2019.

Comparable food and beverage revenue increased $33 million during the year ended December 31, 2019, compared to the same periods in 2018 primarily as a result of an increase in banquet and catering revenue.

Ancillary hotel

Year ended December 31,

(in millions)

Comparable ancillary hotel revenue

Non-comparable ancillary hotel revenue

Total ancillary hotel revenue

Based on our 2019 comparable hotels as of December 31, 2019.

Ancillary hotel revenue at our comparable hotels increased $16 million during the year ended December 31, 2019 , compared to the same period in 2018 as a result of an increase in resort and parking fees.

Year ended December 31,

(in millions)

Laundry revenue

Support service revenue

Total other revenue

Laundry revenue decreased during the year ended December 31, 2019 primarily due to the termination of unprofitable contracts with certain hotels.

Support service revenue increased during the year ended December 31, 2019 primarily due to an increase in reimbursable costs from the services agreements with HGV at the Hilton Hawaiian Village Waikiki Beach Resort.

Operating Expenses

Year ended December 31,

Percent Change

(in millions)

Comparable rooms expense

Non-comparable rooms expense

Total rooms expense

Based on our 2019 comparable hotels as of December 31, 2019 .

Rooms expense at our comparable hotels increased $ 13 million for the year ended December 31, 2019 , compared to the same period in 2018 primarily due to an increase in occupancy coupled with increased labor costs.

Non-comparable rooms expense increased $ 5 million during the year ended December 31, 2019 , compared to the same period in 2018 as a result of the re-opening of the Caribe Hilton.

Expenses recognized by hotels acquired through the Merger were offset by a reduction of expenses from hotels disposed of during 2019.

Food and beverage

The following items have had a significant effect on the year-over-year comparability of our operations and are illustrated further discussed in the table of Hotel Revenues and Operating Expenses below:

Property Acquisitions:

On May 5, 2019, 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”).

As a result of the Merger, we acquired 18 hotels, two of which were disposed of in December 2019.

The results of operations of these hotels prior to acquisition for the year ended December 31, 2019 are not included in our consolidated results.

Property Dispositions:

Since January 1, 2019, we disposed of ten consolidated hotels, including two hotels acquired in the Merger that were subsequently sold.

As a result of these dispositions, our revenues and operating expenses decreased for the year ended December 31, 2020 as compared to the same period in 2019.

The results of operations during our period of ownership of these hotels are included in our consolidated results.

Beginning in March 2020, we experienced a significant decline in ADR, occupancy and RevPAR due to COVID-19.

The economic contraction resulting from the spread of COVID-19 has and is expected to continue to significantly affect our business.

Consequently, the results of our portfolio during the year ended December 31, 2020 will not be comparable to the same period in 2019.

Hotel Revenues and Operating Expenses

Year Ended December 31,

Percent Change

(in millions)

Comparable food and beverage expense

Non-comparable food and beverage expense

Total food and beverage expense

Based on our 2019 comparable hotels as of December 31, 2019 .

Food and beverage expense at our comparable hotels increased $21 million during the year ended December 31, 2019 compared to the same period in 2018 primarily as a result of increases in banquet and catering expenses associated with the increase in associated revenues.

Rooms revenue

Food and beverage revenue

Ancillary hotel revenue

Rooms expense

Food and beverage expense

Other departmental and support

Year ended December 31,

Percent Change

(in millions)

Comparable other departmental and support expense

Non-comparable other departmental and support

Total other departmental and support expense

Based on our 2019 comparable hotels as of December 31, 2019 .

Other departmental and support expense at our comparable hotels increased $12 million during the year ended December 31, 2019 , compared to the same period in 2018 as a result of increases in administrative and general and sales and marketing expenses primarily as a result of an increase in business and labor costs.

Other property-level

Other property-level expense

Management fees expense

Change from other factors primarily relates to the effects of COVID-19.

Other revenue and Other expense

During the year ended December 31, 2020, we permanently closed operations at all three of our laundry facilities resulting in a decrease in both laundry revenue and laundry expense.

The decreases in support services revenue and expense are due to reductions in expenses as well as lower cost reimbursements as a result of operations being suspended at most hotels that have a service arrangement with Hilton Grand Vacations (“HGV”).

Year ended December 31,

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(in millions)

Comparable other property-level expense

Non-comparable other property-level expense

Total other property-level expense

Based on our 2019 comparable hotels as of December 31, 2019 .

Other property-level expenses at our comparable hotels increased $14 million for the year ended December 31, 2019 , compared to the same period in 2018 as a result of increases in property insurance and property tax expense.

Management fees

Support services revenue

Laundry revenue

Total other revenue

Year Ended December 31,

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(in millions)

Comparable management fees expense

Non-comparable management fees expense

Total management fees expense

Based on our 2019 comparable hotels as of December 31, 2019 .

Management fees at our comparable hotels increased $3 million for the year ended December 31, 2019, compared to the same period in 2018 due to an increase in the revenues and profitability metrics that the base and incentive fees are calculated upon.

Casualty gain (loss) and impairment loss, net

During the year ended December 31, 2019, w e recognized a net gain of $18 million within casualty (gain) loss and impairment loss, net in our consolidated statements of comprehensive income, which includes a gain of $27 million for amounts recovered from insurance in excess of the insurance receivable and a loss of $9 million relating to property damage at certain of our hotels that we may not recover from insurers.

Support services expense

Laundry expense

Total other expense

Corporate general and administrative

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Share-based compensation expense

Transition expense

Disposition costs

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Acquisition costs

Acquisition costs of $70 million for the year ended December 31, 2019 , relate to costs incurred in connection with the Merger.

Year Ended December 31,

Percent Change

(in millions)

Laundry expense

Support services expense

Laundry expense decreased during the year ended December 31, 2019 primarily due to a reduction in costs following the termination of unprofitable contracts with certain hotels.

Support service expense increased during the year ended December 31, 2019 primarily due to an increase in costs incurred for the services agreements with HGV at the Hilton Hawaiian Village Waikiki Beach Resort.

During the year ended December 31, 2020, we incurred $10 million of acquisition costs, primarily as a result of $9 million of transfer tax in connection with the Merger with Chesapeake based on new information received during the year.

Acquisition costs of $70 million for the year ended December 31, 2019 related to costs incurred in connection with the Merger.

Impairment loss and casualty (gain) loss, net

During the year ended December 31, 2020, we recognized a net loss of $696 million primarily as a result of $607 million of impairment losses related to our goodwill and $90 million of impairment losses primarily related to one of our hotels, and our inability to recover the carrying value because of COVID-19.

During the year ended December 31, 2019 , we recognized a net gain of $18 million within impairment loss and casualty (gain) loss, net in our consolidated statements of comprehensive (loss) income, which included a gain of $27 million for amounts recovered from insurance in excess of the insurance receivable and a loss of $9 million relating to property damage at certain of our hotels.

Gain on sales of assets, net

During the year ended December 31, 2019 , we recognized a net gain of $19 million as a result of the sale of seven of our consolidated hotels.

During the year ended December 31, 2020, we recognized a net gain of $62 million primarily as a result of the sale of two of our consolidated hotels.

Refer to Note 3:

“Acquisitions, Dispositions and Assets Held for Sale” in our audited consolidated financial statements included elsewhere within this Annual Report on Form 10-K for additional information.

During the year ended December 31, 2018 , we recognized a net gain of $96 million, including the reclassification of a currency translation adjustment of $31 million from accumulated other comprehensive loss to earnings, as a result of the sale of 12 of our consolidated hotels.

Additionally, we recognized a $2 million loss as a result of the sale of furniture and equipment to the ground lessor at the Hilton Chicago O’Hare Airport, in connection with the termination of the ground lease.

During the year ended December 31, 2019 , we recognized a net gain of $19 million as a result of the sale of seven of our consolidated hotels.

Non-operating Income and Expenses

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2019 Term Facility ( 3)

2025 Senior Secured Notes

2028 Senior Secured Notes

Total interest expense

In October 2016, we entered into a $725 million CMBS loan secured by the Hilton San Francisco Union Square and the Parc 55 Hotel San Francisco (“SF CMBS Loan”) and a $1.275 billion CMBS loan secured by the Hilton Hawaiian Village Waikiki Beach Resort (“HHV CMBS Loan”).

We repaid the 2016 Term Loan by $50 million and $69 million in December 2019 and June 2020, respectively.

The 2016 Term Loan was fully repaid in September 2020.

In August 2019, the Company, our Operating Company and PK Domestic entered into a credit agreement with Bank of America, N.A.

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The $100 million, two-year delayed draw term loan tranche was unfunded and the commitments thereunder terminated on September 18, 2019.

On December 31, 2019, we prepaid $180 million of the 2019 Term Facility.

Interest expense increased as a result of $310 million in mortgage loans assumed in connection with the Merger and borrowings under the 2019 Term Facility to fund the Merger.

On December 31, 2019, we repaid $180 million of the 2019 Term Facility.

Percentage change is not meaningful.

Interest expense increased in 2020 as a result of $310 million in mortgage loans assumed in connection with the Merger, borrowings under the 2019 Term Facility to fund the Merger, the $1 billion drawn under the Revolver in March 2020 (of which $319 million and $80 million was repaid during the second and third quarters of 2020, respectively), and the issuances of our $650 million 2025 Senior Secured Notes and $725 million 2028 Senior Secured Notes, partially offset by a decrease in interest expense as a result of the full repayment of the 2016 Term Loan in September 2020.

Our current debt outstanding is approximately $5.1 billion at a weighted average interest rate of 4.6%, of which approximately 79% is fixed-rate debt, refer to Item 7A:

“Interest Rate Risk” in our audited consolidated financial statements included elsewhere within this Annual Report on Form 10-K for additional information.

Equity in earnings from investments in affiliates

The decrease in 2019 compared to the same period in 2018 was primarily due to an impairment loss of $5 million recognized in 2019 related to one of our investments in affiliates.

Other gain, net

During the year ended December 31, 2019, we recognized a net gain of $46 million, which is primarily due to the sale of our ownership interest in the Conrad Dublin.

Refer to Note 3:

“Acquisitions, Dispositions and Assets Held for Sale” for additional information.

During the year ended December 31, 2018, we recognized a net gain of $102 million, which is primarily due to the sale of our interests in the unconsolidated affiliates that owned the Hilton Berlin.

“Interest Rate Risk” and Note 7 “Debt” in our audited consolidated financial statements included elsewhere within this Annual Report on Form 10-K for additional information.

Equity in (losses) earnings from investments in affiliates

The decrease in equity in earnings from investments in affiliates in 2020 compared to the same period in 2019 was primarily due to the effects of COVID-19.

Other (loss) gain, net

During the year ended December 31, 2020 , we recognized a net loss of $15 million, which is primarily due to an additional $12 million reserve related to ongoing claims in connection with our obligation to indemnify Hilton under the spin-off agreements.

Refer to Note 15:

“Acquisitions, Dispositions and Assets Held for Sale” for additional information.

in our audited consolidated financial statements included elsewhere within this Annual Report on Form 10-K for additional information.

Income tax expense

“Commitments and Contingencies” in our audited consolidated financial statements included elsewhere within this Annual Report on Form 10-K for additional information.

The net gain of $45 million during December 31, 2019 primarily included a $7 million reserve related to these claims offset by a net gain of $44 million due to the sale of our ownership interest in the Conrad Dublin.

Income tax benefit ( expense )

Year Ended December 31,

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(in millions)

Income tax expense

Income tax benefit (expense)

Percentage change is not meaningful.

Income tax expense for the year ended December 31, 2020 includes $37 million of income tax expense associated with sales of hotels sold during the period, partially offset by a TRS income tax benefit of $24 million from utilizing the NOL carryback provisions of the CARES Act.

Additionally, the year ended December 31, 2020 includes $22 million of a net tax benefit from the derecognition of deferred tax liabilities.

Refer to Note 10:

“Income Taxes” in our audited consolidated financial statements included elsewhere within this Annual Report on Form 10-K for additional information.

Income tax expense for the year ended December 31, 2019 includes $15 million of income tax expense associated with the sales of hotels in 2019 and $9 million of income tax primarily associated with our taxable REIT subsidiaries.

Income tax expense for the year ended December 31, 2018 includes $10 million of income tax primarily associated with our taxable REIT subsidiaries, $6 million of built-in gain tax recognized on the sales of hotels in 2018, and $10 million of deferred income tax expense from an additional built-in gain deferred tax liability resulting from the enactment of the Tax Cuts and Jobs Act, which prohibits the sale of ancillary hotel furniture, fixtures and equipment to be included in a like-kind exchange.

Liquidity and Capital Resources

Our sources of liquidity include cash flows from operations, cash and cash equivalents, borrowings under our revolving credit facility (“Revolver”) and issuing securities.

We seek to maintain sufficient amounts of liquidity with an appropriate balance of cash, debt and equity to provide financial flexibility.

As of December 31, 2020, we had total cash and cash equivalents of $951 million and $30 million of restricted cash.

Restricted cash primarily consists of cash restricted as to use by our debt agreements and reserves for capital expenditures in accordance with certain of our management agreements.

In addition, we had $1 billion of available capacity remaining under our Revolver and the ability to raise capital through the issuance of securities under our shelf-registration statement on Form S-3.

Our known short-term liquidity requirements primarily consist of funds necessary to pay for operating expenses and other expenditures, including reimbursements to our hotel manager for payroll and related benefits, costs associated with the operation of our hotels, interest and scheduled principal payments on our outstanding indebtedness, capital expenditures for renovations and maintenance at our hotels, and dividends to our stockholders.

Our long-term liquidity requirements primarily consist of funds necessary to pay for scheduled debt maturities, capital improvements at our hotels, and costs associated with potential acquisitions.

As a result of the economic uncertainty resulting from the effects of COVID-19, including decreased occupancy, ADR and RevPAR at our hotels, as described above under “Recent Events–COVID-19 Effect on Our Business”, we expect our cash flows through the first-half of 2021 to be significantly lower than prior to COVID-19.

We have taken several steps to preserve capital and increase liquidity, including drawing $1 billion from our Revolver in March 2020 (which we subsequently partially repaid), issuing $650 million of 2025 Senior Secured Notes in May 2020 (a portion of which was used to partially repay amounts outstanding under our Revolver and 2016 Term Loan), issuing $725 million of 2028 Senior Secured Notes in September 2020 (a portion of which was used to repay the 2016 Term Loan in full as well as a portion of the Revolver), suspending our dividend following the payment of the first quarter 2020 dividend and implementing various cost saving initiatives at our hotels including:

temporary suspension of operations at certain hotels and selected restaurants and other businesses and outlets and reductions in budgeted capital expenditures to approximately $40 million for 2021.

We will continue to assess when the deferred capital expenditures will resume or if any of the deferred expenditures will be cancelled.

While operations have been significantly reduced, and in some cases remain suspended, at most of our hotels, the duration and extent of the effects of COVID-19 remain unknown, and we cannot predict whether our reopened hotels will be forced to suspend operations again in the future.

Based on an average monthly burn rate of $42 million, which takes into account current operations from both open and suspended hotels and uses an accrual-based methodology, and as a result of the above-mentioned cost-reduction efforts and the overall strength of our balance sheet, absent any debt required to be repaid, we currently expect to have 33 months of liquidity available to meet our financial obligations.

This estimate does not take into account planned capital expenditures (which are expected to be approximately $40 million for 2021) or any possible alternative sources of revenue that may arise, any hotel property dispositions or payment of future cash dividends, if any.

The estimated burn rate amount does not take into account any amount available to us under existing or future debt facilities, or proceeds from issuance of any additional debt, equity or equity-linked securities.

With the net proceeds from our Revolver borrowings during 2020, net proceeds from the offering of our 2025 Senior Secured Notes and 2028 Senior Secured Notes and the proceeds from the sales of two consolidated hotels during the first quarter of 2020, we have sufficient liquidity to pay our 2021 debt maturities and to fund other short-term liquidity obligations.

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.

In addition, we also may take other actions to improve our liquidity, such as the issuance of additional debt, equity or equity-linked securities, if we determine that doing so would be beneficial to us.

However, there can no assurance as to the timing of any such issuance, which may be in the near term, or that any such additional financing will be completed on favorable terms, or at all.

In May and September 2020, we amended our credit facilities, which in addition to providing enhanced liquidity, extending the maturity of the Revolver and extending the waiver period for the testing of the financial covenants,

placed certain restrictions on the Company.

Refer to Note 7:

“Debt” in our audited consolidated financial statements included elsewhere within this Annual Report on Form 10-K for additional information.

Our known short-term liquidity requirements primarily consist of funds necessary to pay for operating expenses and other expenditures, including reimbursements to our hotel manager for payroll and related benefits, costs associated with the operation of our hotels, interest and scheduled principal payments on our outstanding indebtedness (including the 2025 Senior Secured Notes and 2028 Senior Secured Notes), capital expenditures for renovations and maintenance at our hotels, corporate general and administrative expenses, and, when resumed, dividends to our stockholders.

Many of the other expenses associated with our hotels are relatively fixed, including portions of rent expense, property taxes and insurance.

Since we generally are unable to decrease these costs significantly or rapidly when demand for our hotels decreases, the resulting decline in our revenues can have a greater adverse effect on our net cash flow, margins and profits.

Our long-term liquidity requirements primarily consist of funds necessary to pay for scheduled debt maturities, capital improvements at our hotels (to the extent not cancelled or deferred), and costs associated with potential acquisitions.

Despite the impact of COVID-19 on the global economy, including a sustained decline in our performance, we were able to access the debt capital markets during the second and third quarters of 2020 and complete our inaugural notes offering for our 2025 Senior Secured Notes as well as the offering of our 2028 Senior Secured Notes.

However, it may be difficult or costly for us to raise additional debt or equity capital in the future to fund long-term liquidity requirements.

Our commitments to fund capital expenditures for renovations and maintenance at our hotels will be funded by cash and cash equivalents, restricted cash to the extent permitted by our lending agreements and cash flow from operations.

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Generally, these agreements require that we fund 4% of hotel revenues into an FF&E reserve, unless such amounts have been incurred.

We finance our business activities primarily with existing cash and cash generated from our operations, and if necessary, short-term borrowing under our Revolver, or proceeds from public offerings of other securities.

We believe that this cash will be adequate to meet anticipated requirements for operating expenses and capital expenditures for the foreseeable future.

Our cash management objectives are to maintain the availability of liquidity, minimize operational costs, make debt payments and fund our capital expenditure programs and future acquisitions.

As a result of COVID-19, our hotel managers have temporarily delayed contributions to the FF&E reserve accounts and in addition, have allowed our hotels to utilize, as needed, their FF&E reserve for operating expenses at the respective hotels, as long as the hotels remain in compliance with debt agreements.

Our cash management objectives continue to be to maintain the availability of liquidity, minimize operational costs, make debt payments and fund our capital expenditure programs and future acquisitions.

Further, we have an investment policy that is focused on the preservation of capital and maximizing the return on new and existing investments.

Merger with Chesapeake

On September 18, 2019, the Merger was completed pursuant to the terms and subject to the conditions set forth in the Merger Agreement, and Chesapeake merged with and into Merger Sub.

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 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.

In August 2019, we entered into the 2019 Term Facility, which provided a $950 million Term Facility, with the $850 million, five-year delayed draw term loan tranche under the 2019 Term Facility fully drawn on September 18, 2019 to fund the Merger.

The $100 million, two-year delayed draw term loan tranche under the 2019 Term Facility was not funded and the commitments thereunder terminated on September 18, 2019.

In December 2019, we prepaid $180 million of the 2019 Term Facility.

Refer to Note 1:

“Organization” and Note 7:

“Debt” in our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

We anticipate an increase in cash outflows as a result of the increased dividend payment requirements with respect to the 37.8 million shares of our common stock issued to Chesapeake common shareholders on September 18, 2019 as part of the consideration for the Merger.

We expect to fund the dividends from increased cash flows generated from the hotels acquired in the Merger.

Stock Repurchase Program

In February 2019, our Board of Directors approved a stock repurchase program allowing us to repurchase up to $300 million of our common stock over a two-year period, ending in February 2021.

In February 2019, our Board of Directors approved a stock repurchase program allowing us to repurchase up to $300 million of our common stock over a two-year period, ending in February 2021, and we do not currently anticipate renewing the stock repurchase program.

Stock repurchases, if any, would be made through open market purchases, including through Rule 10b5-1 trading programs, in privately negotiated transactions, or in such other manner that would comply with applicable securities laws.

The timing of stock repurchases and the number of shares to be repurchased will depend upon prevailing market conditions and other factors.

No stock repurchases have been made to date using this program.

The timing of stock repurchases and the number of shares to be repurchased will depend upon prevailing market conditions and other factors, and we may suspend the repurchase program at any time.

During the year ended December 31, 2020, we repurchased 4.6 million shares of our common stock for a total purchase price of $66 million.

As of December 31, 2020, approximately $234 million remained available for stock repurchases.

Our credit facility and term loan amendments impose restrictions surrounding our ability to repurchase stock until certain financial ratio metrics are achieved.

Sources and Uses of Our Cash and Cash Equivalents

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(in millions)

Net cash provided by operating activities

Net cash (used in) provided by investing activities

Net cash provided by (used in) financing activities

Net cash (used in) provided by operating activities

Net cash provided by (used in) investing activities

Net cash provided by financing activities

Percentage change is not meaningful.

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Cash flow from operating activities are primarily generated from the operating income generated at our hotels.

The $55 million increase in net cash provided by operating activities for the year ended December 31, 2019 compared to the year ended December 31, 2018 was primarily due to a $48 million decrease in cash paid for income taxes.

The $ 937 million decrease in net cash provided by operating activities for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily due to a decrease in cash from operations related to the effects of COVID-19 coupled with an increase in cash paid for interest of $ 52 million.

Investing Activities

The $119 million in net cash provided by investing activities for the year ended December 31, 2020 was primarily attributable to $207 million in net proceeds received from the sale of hotels, partially offset by $86 million in capital expenditures.

The $635 million in net cash used in investing activities for the year ended December 31, 2019 was primarily attributable to the $914 million used in the acquisition of Chesapeake and $240 million used for capital expenditures for property and equipment at our hotels, partially offset by $480 million in net proceeds received from the sale of hotels.

The $419 million in net cash provided by investing activities for the year ended December 31, 2018 was primarily attributable to the $519 million in net proceeds received from the sale of hotels and $88 million of insurance proceeds received for property damage claims, partially offset by $178 million used for capital expenditures for property and equipment at our hotels.

Financing Activities

The $97 million in net cash provided by financing activities for the year ended December 31, 2019 is primarily attributable to borrowings of $850 million from the 2019 Term Facility entered into in September 2019 to fund the Merger, partially offset by the repayment of $232 million of outstanding debt and $494 million in dividends paid.

The $816 million in net cash used in financing activities for the year ended December 31, 2018 is primarily attributable to the repurchase of 14,000,000 shares of our common stock for $348 million, coupled with $464 million in dividends paid.

The $914 million in net cash provided by financing activities for the year ended December 31, 2020 was primarily attributable to borrowings of $1 billion from our Revolver as a result of COVID-19, the issuance of our $650 million 2025 Senior Secured Notes and $725 million 2028 Senior Secured Notes, partially offset by $1.1 billion of debt repayments, $241 million in dividends paid and the repurchase of 4.6 million shares of our common stock for $66 million.

The $97 million in net cash provided by financing activities for the year ended December 31, 2019 was primarily attributable to borrowings of $850 million from the 2019 Term Facility entered into in September 2019 to fund the Merger, partially offset by the repayment of $232 million of outstanding debt and $494 million in dividends paid.

As a REIT, we are required to distribute at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain, to our stockholders on an annual basis.

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Instead, we will need to meet these needs from external sources of capital and amounts, if any, by which our cash flow generated from operations exceeds taxable income.

However, as a precautionary measure in light of COVID-19, after the payment of the first quarter dividend, we suspended our quarterly dividend.

We declared the following dividends to holders of our common stock during 2020:

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April 15, 2020

June 28, 2019

July 15, 2019

September 30, 2019

October 15, 2019

December 31, 2019

January 15, 2020

As of December 31, 2019, our total indebtedness was approximately $3.9 billion, including approximately $310 million assumed in the Merger, and excluding approximately $225 million of our share of debt of investments in affiliates.

As of December 31, 2020, our total indebtedness was approximately $5.1 billion, including approximately $601 million of borrowings from our Revolver, $650 million of 2025 Senior Secured Notes and $725 million of 2028 Senior Secured Notes, as disclosed above, and excluding approximately $225 million of our share of debt of investments in affiliates.

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

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Assumes the exercise of all extensions that are exercisable solely at our option.

The $60 million mortgage loan for Hilton Denver City Center matures 2042 but is callable by the lender beginning August 2022.

In December 2020, our joint venture executed a forbearance agreement for the $12 million loan secured by the Doubletree Spokane in which the lender agreed to forbear exercising its rights and remedies arising from the joint venture’s non-payment of the loan at maturity due to market conditions until October 6, 2021.

Includes principal, as well as estimated interest payments.

For our variable-rate debt, we have assumed a constant 30-day LIBOR rate of 1.76% as of December 31, 2019.

For our variable-rate debt not subject to a LIBOR floor, we have assumed a constant 30-day LIBOR rate of 0.14% as of December 31, 2020.

Only includes our future minimum lease payments, refer to Note 9:

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We evaluate the carrying value of our property and equipment and intangible assets with finite lives by comparing the expected undiscounted future cash flows to the net book value of the assets if we determine there are indicators of potential impairment.

If it is determined that the expected undiscounted future cash flows are less than the net book value of the assets, the excess of the net book value over the estimated fair value is recorded in our consolidated statements of comprehensive income as an impairment loss.

As part of the process described above, we exercise judgment to:

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determine the projected undiscounted future cash flows when indicators of impairment are present.

Judgment is required when developing projections of future revenues and expenses based on estimated growth rates over the expected useful life of the asset group.

Judgment is required when developing projections of future revenues and expenses based on estimated growth rates over the expected hold period of the asset group.

These estimated growth rates are based on historical operating results, as well as various internal projections and external sources;

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If an identified event or change in circumstances requires an evaluation to determine if the value of an investment may have an other-than-temporary decline, we assess the fair value of the investment based on the accepted valuation methods, which include discounted cash flows, estimates of sales proceeds and external appraisals.

If an investment’s fair value is below its carrying value and the decline is considered to be other-than-temporary, we will recognize an impairment loss in equity in earnings (losses) from investments in affiliates for equity method investments in our consolidated statements of comprehensive income.

If an investment’s fair value is below its carrying value and the decline is considered to be other-than-temporary, we will recognize an impairment loss in equity in (losses) earnings from investments in affiliates for equity method investments in our consolidated statements of comprehensive (loss) income.

Our investments in affiliates consist primarily of our interests in entities that own or lease properties.

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Changes in estimates and assumptions used in our impairment testing of investments in affiliates could result in future impairment losses, which could be material.

During the year ended December 31, 2019, we recognized an impairment loss of $5 million related to our investments in affiliates.

A 10% change in our estimate of fair value of these investments in affiliates that were impaired during 2019 would have resulted in less than $1 million of additional impairment loss.

Further, we did not identify any additional investments in affiliates with indicators of impairment for which a 10% change in our estimates of future cash flows or other significant assumptions would result in material impairment losses.

We have two reporting units, consolidated and unconsolidated hotels, to which goodwill has been allocated.

Certain of the entities that are included in our consolidated financial statements were consolidated subsidiaries of Hilton Worldwide Holdings Inc.

(“Parent”) at the time of its predecessor’s merger with an affiliate of The Blackstone Group L.P.

(“Blackstone Merger”) .

Our Parent allocated goodwill to us based on the relative fair value of our properties compared to that of Parent’s ownership segment as of the date of the Blackstone Merger.

We review the carrying value of our goodwill by comparing the carrying values of our reportable units to their fair values.

Our reporting units are the same as our operating segments as described in Note 15:

“Geographic and Business Segment Information”.

We perform this evaluation annually or at an interim date if indicators of impairment exist.

In any given year we may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value.

If we cannot determine qualitatively that the fair value is in excess of the carrying value, or we decide to bypass the qualitative assessment, we proceed to the two-step quantitative process.

In the first step, we evaluate the fair value of our reporting unit quantitatively.

When determining fair value, we utilize discounted future cash flow models, as well as market conditions relative to the operations of our reporting unit.

When using a discounted cash flow approach, we utilize various assumptions that require judgment, including projections of revenues and expenses based on estimated long-term growth rates, terminal value and discount rates based on weighted average cost of capital.

Our estimates of long-term growth and costs are based on historical data, as well as various internal projections and external sources.

The weighted average cost of capital is estimated based on the reporting units’ cost of debt and equity and a selected capital structure.

The selected capital structure for the reporting unit is based on consideration of capital structures of comparable publicly traded REITs.

If the carrying amount of the reporting unit exceeds its estimated fair value, then the second step must be performed.

In the second step, we estimate the implied fair value of goodwill, which is determined by taking the fair value of the reporting unit and allocating it to all of its assets and liabilities, including any unrecognized intangible assets, as if the reporting unit had been acquired in a business combination.

Changes in the estimates and assumptions used in our goodwill impairment testing could result in future impairment losses, which could be material.

The amount of goodwill allocated to our consolidated hotel reporting unit was $561 million.

The fair value of our consolidated hotel reporting unit exceeded the carrying value by 8%.

We did not identify any investments in affiliates with indicators of impairment for which a 10% change in our estimates of future cash flows or other significant assumptions would result in material impairment losses.

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities using currently enacted tax rates.

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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 7. Management’s Discussion and Analysis