What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-02-26 compared with 2020-02-27 · 307 added, 284 removed, 864 unchanged (41% of the section changed)

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Consolidated Balance Sheets as of December 31, 2020 and 2019

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2019, 2018 and 201 7

Consolidated Statements of Comprehensive (Loss) Income for the Years Ended December 31, 2020, 2019 and 2018

Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018

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We have audited the accompanying consolidated balance sheets of Park Hotels & Resorts Inc.

(the Company) as of December 31, 2019 and 2018, the related consolidated statements of comprehensive income, cash flows, and equity for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedule listed in the Index at Item 15 (collectively referred to as the “consolidated financial statements”).

(the Company) as of December 31, 2020 and 2019, the related consolidated statements of comprehensive (loss) income, cash flows, and equity for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15 (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S.

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 26, 2021 expressed an unqualified opinion thereon.

Adoption of Accounting Standards Update (ASU) No.

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of ASU No.

2016-02, Leases (Topic 842), and the related amendments.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of Goodwill

Description of the Matter

At December 31, 2019, the Company’s goodwill balance was $607 million.

As discussed in Note 2 of the consolidated financial statements, goodwill is tested for impairment at least annually at the reporting unit level.

Auditing management’s annual goodwill impairment test was complex and highly judgmental due to the significant estimation required in determining the fair value of the reporting units.

In particular, the fair value estimate was sensitive to significant assumptions such as the weighted average cost of capital, projections of revenue and expenses, and terminal value, which are based on internal projections and external sources.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment review process, including controls over management’s review of the significant assumptions described above.

To test the estimated fair value of the Company’s reporting units, we performed audit procedures that included, among others, assessing methodologies and testing the significant assumptions discussed above and the underlying data used by the Company in its analysis.

We compared the significant assumptions used by management to current industry and economic trends, changes to the Company’s business model and other relevant factors.

We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting units that would result from changes in the assumptions.

In addition, we reviewed the reconciliation of the aggregate fair value of the reporting units to the market capitalization of the Company.

Lastly, we involved a valuation specialist to assist in the evaluation of the methodologies used, assumptions underlying the fair value measurement and recalculation of fair value measurement.

Business Combination

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of Property and Equipment

Description of the Matter

During 2019, the Company completed its acquisition of Chesapeake Lodging Trust (“Chesapeake”) for total consideration of approximately $2 billion as disclosed in Note 3 to the consolidated financial statements.

The transaction was accounted for as a business combination.

Auditing the purchase price allocation for this acquisition was complex and highly judgmental as a result of the magnitude of total assets acquired and liabilities assumed and the significant assumptions involved in determining the fair value of the acquired assets and assumed liabilities.

For this acquisition, such assumptions include the identification of market data for similar assets when assessing the fair value of land, air rights intangibles, and above or below market lease intangibles, evaluation of replacement cost when assessing the fair value of buildings, and expected future cash flows, inclusive of estimates of future income growth, discounted at risk-adjusted rates when assessing the fair value of the acquired properties taken as a whole.

At December 31, 2020, the Company’s property and equipment, net balance was $9,193 million and the Company recognized impairment charges totaling $90 million on property and equipment during the year ended December 31, 2020.

As discussed in Note 2 of the consolidated financial statements, property and equipment is evaluated for recoverability based on expected future cash flows if there are indicators of potential impairment.

Auditing management’s assessment of potential impairment of property and equipment was complex and highly judgmental due to the significant estimation required in determining the estimated hold period, expected future cash flows, discount rate and/or capitalization rates for the properties subject to a recoverability test and/or a fair value measurement.

In particular, the expected future cash flows are based on assumptions, including the projections of revenues and expenses based on estimated growth rates that are forward looking, could be affected by future economic and market conditions, and sensitive to discount rate and/or capitalization rate changes.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the purchase price allocation for the business combination, including controls over management’s review of the significant assumptions described above.

Our testing of the Company’s purchase price allocation for the business combination included, among others, reading the purchase agreements, evaluating the measurement of the consideration, and evaluating the significant assumptions and methods used in developing the fair value estimates.

With the assistance of our valuation specialists, we evaluated, among other things, whether (1) assets and liabilities were properly identified, and (2) the significant assumptions, including the replacement cost of buildings, market data for similar assets, expected future cash flows of the properties, discount rates, and capitalization rates, used in valuing the assets acquired and liabilities assumed were supportable.

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s review process over impairment testing of property and equipment, including controls over management’s review of the significant assumptions described above.

Our testing of the Company’s impairment assessment included, among other procedures, evaluating the significant assumptions and testing the completeness and accuracy of the underlying data used by the Company to develop the expected future cash flows, if applicable, for their properties.

We compared the significant assumptions used by management to current industry and economic trends, changes to the Company’s strategy and other relevant factors.

For example, we compared estimates of future income growth, discount rates and capitalization rates used in the discounted cash flow models to market data.

In addition, we compared assumed land values to comparable land sales.

We compared the Company’s estimated fair values of acquired properties to independent estimates developed by our valuation specialist.

We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate changes in the expected undiscounted future cash flows and fair value of the properties that would result from changes in the assumptions.

We held discussions with management about the current status of potential transactions and about management’s judgments to understand the probability of future events that could affect the hold period and other cash flow assumptions for the properties.

We searched for and evaluated information that corroborates and/or contradicts the Company’s assumptions.

Lastly, we involved a valuation specialist to assist in the evaluation of the methodologies used, assumptions underlying the fair value measurement and recalculation of the fair value measurement.

/s/ Ernst & Young LLP

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(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of comprehensive income, cash flows, and equity for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedule listed in the Index at Item 15 and our report dated February 27, 2020 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of comprehensive (loss) income, cash flows, and equity for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15 and our report dated February 26, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

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Due to hotel managers

Due to Hilton Grand Vacations

Deferred income tax liabilities

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PARK HOTELS & RESORTS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(in millions, except per share data)

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Management fees

Casualty (gain) loss and impairment loss, net

Impairment loss and casualty (gain) loss, net

Depreciation and amortization

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Gain on sales of assets, net

Operating income

Operating (loss) income

Interest income

Interest expense

Equity in earnings from investments in affiliates

Loss on foreign currency transactions

Other gain, net

Income before income taxes

Income tax (expense) benefit

Net income attributable to noncontrolling interests

Net income attributable to stockholders

Other comprehensive income, net of tax expense:

Currency translation adjustment, net of tax of $ 0 , $ 4 and $ 0

Total other comprehensive income

Comprehensive income

Comprehensive income attributable to noncontrolling

Comprehensive income attributable to stockholders

Earnings per share:

Earnings per share - Basic

Earnings per share - Diluted

Equity in (losses) earnings from investments in affiliates

Other (loss) gain, net

(Loss) Income before income taxes

Income tax benefit (expense)

Net (loss) income

Net loss (income) attributable to noncontrolling interests

Net (loss) income attributable to stockholders

Other comprehensive (loss) income, net of tax expense:

Currency translation adjustment, net of tax expense of $ 0 , $ 4 and $ 0

Change in fair value of interest rate swap, net of tax expense

Total other comprehensive (loss) income

Comprehensive (loss) income

Comprehensive loss (income) attributable to noncontrolling

Comprehensive (loss) income attributable to stockholders

(Loss) Earnings per share:

(Loss) Earnings per share - Basic

(Loss) Earnings per share - Diluted

Weighted average shares outstanding - Basic

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Operating Activities:

Adjustments to reconcile net income to net cash provided by

Net (loss) income

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

operating activities:

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Gain on sales of assets, net

Casualty (gain) loss and impairment loss, net

Equity in earnings from investments in affiliates

Loss on foreign currency transactions

Other gain, net

Impairment loss and casualty (gain) loss, net

Equity in losses (earnings) from investments in affiliates

Other loss (gain), net

Share-based compensation expense

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Other liabilities

Net cash provided by operating activities

Net cash (used in) provided by operating activities

Investing Activities:

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Insurance proceeds for property damage claims

Investments in affiliates

Distributions from unconsolidated affiliates

Net cash (used in) provided by investing activities

Contributions to unconsolidated affiliates

Net cash provided by (used in) investing activities

Financing Activities:

Borrowings under credit facilities

Repayment of debt

Payments of deferred financing costs

Proceeds from issuance of Senior Secured Notes

Borrowings from credit facilities

Repayments of credit facilities

Repayments of mortgage debt

Debt issuance costs

Dividends paid

Distributions to noncontrolling interests

Distributions to noncontrolling interests, net

Tax withholdings on share-based compensation

Repurchase of common stock

Repayment of debt

Net transfers to Parent

Net cash provided by (used in) financing activities

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

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

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

Cash and cash equivalents and restricted cash, beginning of period

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Comprehensive

(Loss) Income

Balance as of December 31, 2017

Net transfers to Parent

Issuance of common stock and

reclassification of former

Parent investment

Share-based compensation, net

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Dividends and dividend equivalents ( 1)

Repurchase of common stock

Distributions to noncontrolling

Balance as of December 31, 2018

Issuance of common stock

Share-based compensation, net

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Dividends and dividend equivalents ( 1)

Repurchase of common stock

Distributions to noncontrolling

Cumulative effect of change in accounting principle

Balance as of December 31, 2019

Issuance of common stock

Share-based compensation, net

Other comprehensive income

Other comprehensive loss

Dividends and dividend equivalents ( 1)

Repurchase of common stock

Distributions to noncontrolling

Cumulative effective of change in accounting principle

Balance as of December 31, 2020

Dividends declared per common share were $ 1.99 , $ 1.90 and $ 0.45 for the years ended December 31, 2018, December 31, 2019, and December 31, 2020, respectively.

Additional special cash dividends totaling $ 2.79 and $ 0.75 per common share were declared for the years ended December 31, 2017 and December 31, 2018, respectively.

Additional special cash dividends totaling $ 0.75 per common share were declared for the year ended December 31, 2018.

Refer to the notes to the consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Organization and Recent Events

Park Hotels & Resorts Inc.

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as an independent, publicly traded company.

The spin-off transaction was effected through a pro rata distribution of Park Hotels & Resorts Inc.

stock to existing Hilton stockholders.

On May 5, 2019, the Company, PK Domestic Property LLC, an indirect subsidiary of the Company (“PK Domestic”), and PK Domestic Sub LLC, a wholly-owned subsidiary of PK Domestic (“Merger Sub”) entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) with Chesapeake Lodging Trust (“Chesapeake”).

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The value of any fractional interests to which a Chesapeake shareholder would otherwise have been entitled was paid in cash.

We are treated as a real estate investment trust (“REIT”) for United States (“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 real estate investment trust (“REIT”) for United States (“U.S.”) federal income tax purposes.

We have been organized and operated, and we expect to continue to be organized and operate, in a manner to qualify as a REIT.

From the date of our spin-off from Hilton, Park Intermediate Holdings LLC (our “Operating Company”), directly or indirectly, has held all our assets and has conducted all of our operations.

We own 100 % of the interests in our Operating Company.

Recent Events

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

The effects of COVID-19, including government restrictions such as mandated closings of non-essential businesses and travel restrictions, have severely reduced overall lodging demand.

Since the beginning of March 2020, we have experienced a significant decline in occupancy and Revenue per Available Room (“RevPAR”) associated with COVID-19 throughout our portfolio, which resulted in a decline in our operating cash flow.

The announcements of the 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.

However, we expect that COVID-19 will continue to negatively affect our operating results for at least the first-half of 2021.

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

We have since commenced a phased reopening of 28 of our hotels as restrictions are removed and demand returns.

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

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

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

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

In September 2020, our Operating Company, PK Domestic and PK Finance issued an aggregate of $ 725 million of senior secured notes due 2028 (“2028 Senior Secured Notes”).

Net proceeds were used to repay the $ 631 million remaining balance outstanding under the 2016 Term Loan in full and to repay $ 80 million of our outstanding balance under the Revolver, which may be redrawn.

Additionally, in September 2020, we further amended our credit facilities to, among other things, increase borrowing capacity of the Revolver, extend the maturity date with respect to $ 901 million of the aggregate commitments of the Revolver, extend the waiver period for the testing of the financial covenants and place certain additional restrictions on us.

Refer to Note 7:

“Debt” for additional information.

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

Basis of Presentation and Summary of Significant Accounting Policies

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Reclassifications

Certain line items on the consolidated statements of comprehensive income for the years ended December 31, 2018 and 2017 and consolidated statements of cash flows for the year ended December 31, 2018 have been reclassified to conform to the current period presentation.

Certain line items on the consolidated statements of comprehensive (loss) income and the consolidated statements of cash flows for the years ended December 31, 2019 and 2018 have been reclassified to conform to the current period presentation.

Summary of Significant Accounting Policies

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We perform an analysis to determine the recoverability of the asset’s carrying value by comparing the expected undiscounted future cash flows to the net book value of the asset.

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

Fair value is generally estimated using valuation techniques that consider the discounted cash flows of the asset using discount and capitalization rates deemed reasonable for the type of asset, as well as prevailing market conditions, appraisals, recent similar transactions in the market and, if appropriate and available, current estimated net sales proceeds from pending offers.

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We account for investments using the equity method when we have the ability to exercise significant influence over the entity, typically through a more than minimal investment.

Our proportionate share of earnings (losses) from our equity method investments is presented as equity in earnings (losses) from investments in affiliates in our consolidated statements of comprehensive income.

Our proportionate share of earnings (losses) from our equity method investments is presented as equity in (losses) earnings from investments in affiliates in our consolidated statements of comprehensive (loss) income.

Distributions from investments in affiliates are presented as an operating activity in our consolidated statements of cash flows when such distributions are a return on investment.

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If an identified event or change in circumstances requires an evaluation to determine if an investment may have an other-than-temporary impairment, we assess the fair value of the investment based on accepted valuation methodologies, 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 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 in our consolidated statements of comprehensive (loss) income.

Non-controlling Interests

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For consolidated joint ventures with pro rata distribution allocations, net income or loss is allocated between the joint venture partners based on their respective stated ownership percentages.

In addition, we include net income (loss) attributable to the noncontrolling interest in net income (loss) in our consolidated statements of comprehensive income.

In addition, we include net income (loss) attributable to the noncontrolling interest in net (loss) income in our consolidated statements of comprehensive (loss) income.

Goodwill represents the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized.

We do not amortize goodwill, but rather evaluate goodwill for potential impairment on an annual basis or at other times during the year if events or circumstances indicate that the carrying amount may not be recoverable.

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

We typically evaluate the carrying value of our goodwill annually.

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

We had 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 our Parent at the time of its predecessor’s merger with an affiliate of The Blackstone Group L.P.

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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 goodwill by comparing the carrying value of a reporting unit to its fair value.

In any 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 in excess of 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 determine the fair value of the reporting unit.

The valuation is based on internal projections of expected future cash flows and operating plans, as well as market conditions relative to the operations of our reporting unit.

If the estimated fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary.

However, 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.

If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, the excess is recognized within casualty (gain) loss and impairment loss, net in our consolidated statements of comprehensive income.

We reviewed the carrying value of goodwill by comparing the carrying value of a reporting unit to its fair value, as determined by us.

The valuation was based on internal projections of expected future cash flows and operating plans, as well as market conditions relative to the operations of our reporting unit.

We determined that the carrying value of our consolidated and unconsolidated hotel reporting units exceeded their respective estimated fair value and fully impaired our remaining goodwill balance, recognizing an impairment loss of $ 607 million in the first quarter of 2020 included within impairment loss and casualty (gain) loss, net in our consolidated statements of comprehensive (loss) income.

Intangible Assets

Intangible assets with finite useful lives primarily include an air rights contract and ground lease and operating lease contracts.

Intangible assets with finite useful lives primarily include an air rights contract.

The air rights contract value is based on the present value of the difference between the contractual rental amounts and the market rental rates for similar contracts, measured over a period equal to the remaining non-cancellable term of the contract.

The value of the ground lease and operating lease contracts are based on the present value of the difference between contractual amounts to be paid pursuant to the contracts acquired and the estimate of the fair value of rates for corresponding contracts measured over the period equal to the remaining non-cancellable term of the contract.

Intangible assets are amortized using the straight-line method over the remaining term of the contract.

We review all finite lived intangible assets for impairment when circumstances indicate that their carrying amounts may not be recoverable.

If the carrying value of an asset group is not recoverable, we recognize an impairment loss for the excess of the carrying value over the fair value in our consolidated statements of comprehensive income.

Asset Acquisitions

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Restricted cash includes cash balances established as lender reserves required by our debt agreements and reserves for capital expenditures in accordance with certain of our management agreements.

For purposes of our consolidated statement of cash flows, changes in restricted cash caused by changes in lender reserves due to restrictions under our loan agreements are shown as financing activities and changes in deposits for assets we plan to acquire are shown as investing activities.

Allowance for Doubtful Accounts

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or an undesignated hedge instrument.

Changes in the fair value of a derivative that is qualified, designated and highly effective as a cash flow hedge or net investment hedge are recorded in other comprehensive income (loss) in the consolidated statements of comprehensive income until they are reclassified into earnings in the same period or

periods during which the hedged transaction affects earnings.

Changes in the fair value of a derivative that is qualified, designated and highly effective as a fair value hedge, along with the gain or loss on the hedged asset or liability that is attributable to the hedged risk, are recorded in current period earnings.

Changes in the fair value of a derivative that is qualified, designated and highly effective as a cash flow hedge or net investment hedge are recorded in other comprehensive income (loss) in the consolidated statements of comprehensive (loss) income until they are reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

the hedged risk, are recorded in current period earnings.

Changes in the fair value of undesignated derivative instruments and the ineffective portion of designated derivative instruments are reported in current period earnings.

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Our results of operations primarily consist of room rentals, food and beverage sales and other ancillary goods and services from hotel properties.

Other revenues are from our laundry business and service arrangements with Hilton Grand Vacations (“HGV”).

Hotel operating revenues are disaggregated into room revenue, food and beverage revenue, ancillary hotel revenue and other revenue on the consolidated statements of comprehensive income to illustrate how economic factors affect the nature, amount and timing, and uncertainty of revenue and cash flows.

Other revenues primarily relate to support services we provide to Hilton Grand Vacations (“HGV”), in addition to revenue from our laundry business prior to permanently suspending operations in 2020.

Hotel operating revenues are disaggregated into room revenue, food and beverage revenue, ancillary hotel revenue and other revenue on the consolidated statements of comprehensive (loss) income to illustrate how economic factors affect the nature, amount and timing, and uncertainty of revenue and cash flows.

Rooms revenue is recognized over time when rooms are occupied and food and beverage revenue is recognized at a point in time when goods and services have been delivered or rendered.

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Our advance deposit balance as of December 31, 2020 and 2019 was $ 46 million and $ 98 million, respectively, and are generally recognized as revenue within a one-year period.

Additionally, we collect sales, use, occupancy and similar taxes at our hotels, which we present on a net basis (excluded from revenues) in our consolidated statements of comprehensive income.

Additionally, we collect sales, use, occupancy and similar taxes at our hotels, which we present on a net basis (excluded from revenues) in our consolidated statements of comprehensive (loss) income.

Currency Translation

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Income and expense accounts are translated at the average exchange rate for the period.

Gains and losses from foreign exchange rate changes related to transactions denominated in a currency other than an entity’s function currency are recognized as (loss) gain on foreign currency transactions in our consolidated statements of comprehensive income.

Gains and losses from foreign exchange rate changes related to transactions denominated in a currency other than an entity’s function currency are included within other (loss) gain, net in our consolidated statements of comprehensive income.

We sold our last international hotel in February 2020.

Share-based Compensation

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The requisite service period is the period during which an employee is required to provide service in exchange for an award.

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.

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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Accordingly, no provision for U.S.

federal income taxes has been included in our accompanying consolidated financial statements for the years ended December 31, 2019, 2018 and 2017 related to our REIT activities, other than the derecognition and remeasurement of deferred tax assets and liabilities associated with our election to be taxed as a REIT and taxes associated with built-in gains related to our assets owned at the date of our spin-off.

federal income taxes has been included in our accompanying consolidated financial statements for the years ended December 31, 2020, 2019 and 2018 related to our REIT activities, other than taxes related to our built-in gain property (representing property held by us with an excess of fair value over tax basis on January 4, 2017).

We will be subject to U.S.

federal income tax on taxable sales of built-in gain property during the five-year period following the date of our spin-off.

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

income tax on foreign held REIT activities.

income tax on foreign held REIT activities and certain sales of foreign investments.

Further, our taxable REIT subsidiaries (“TRSs”) are generally subject to U.S.

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Adopted Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2016-02 (“ASU 2016-02”), Leases (Topic 842) , which supersedes existing lease accounting guidance in Leases (Topic 840) and generally requires all leases to be recognized on the statement of financial position.

We adopted this ASU on January 1, 2019 using the optional transition method, which allows entities to initially apply the ASU at the adoption date without revising comparable periods.

We elected certain practical expedients that allowed us to utilize historical lease classifications and elected an accounting policy to continue accounting for leases with an initial term of 12 months and less using existing guidance for operating leases.

We did not elect the practical expedient that allows us to use hindsight to reassess our probability of exercising renewal options;

however, we did include any renewal options controlled by the lessor.

Upon adoption, we recognized an operating lease right-of-use asset of $ 213 million representing the right to use land, buildings, and equipment over lease terms which include renewal options we have exercised, and renewal options controlled by the lessor, and a corresponding operating lease liability of $ 213 million representing the present value of our fixed lease payment obligations.

We also recognized an $ 8 million impairment of the operating lease right-of-use asset associated with one of our previously impaired hotels as a cumulative effect of change in accounting principle within retained earnings.

In addition, we reclassified $ 25 million of below market lease intangibles from intangibles, net and $ 8 million of deferred rent liabilities from other liabilities on our consolidated balance sheet to the operating lease right-of-use asset.

The discount rate used to calculate the operating lease right-of-use asset and operating lease liability was based on our estimated incremental borrowing rate at our adoption date of January 1, 2019.

In August 2018, the FASB issued ASU No.

2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) , which adds recognition, measurement, and disclosure guidance on implementation costs of cloud computing arrangements.

Implementation costs incurred by customers in cloud computing arrangements are deferred if they would be capitalized by customers in software license arrangements under the existing internal-use software guidance.

We elected to early adopt this ASU as of January 1, 2019 on a prospective basis and there was no effect on our consolidated financial statements.

Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU No.

2016-13, “ Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments ”, which will replace the existing “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost.

For trade and other receivables, loans and other instruments, the forward looking “expected loss” model will generally result in the earlier recognition of allowances for losses.

Measurement of Credit Losses on Financial Instruments ”, which replaced the existing “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost.

For trade and other receivables, the forward looking “expected loss” model will generally result in the earlier recognition of allowances for losses.

In November 2018, the FASB issued ASU No.

2018-19, “ Codification Improvements to Topic 326, Financial Instruments-Credit Losses ”, which clarifies that operating lease receivables accounted for under ASC 842 are not in the scope of ASU No.

Both ASUs are effective January 1, 2020 and require new disclosures.

Both ASUs require a modified retrospective approach.

We are currently evaluating the effect that these ASUs will have on our consolidated financial statements.

2018-19, “ Codification Improvements to Topic 326, Financial Instruments-Credit Losses ”, which clarified that operating lease receivables accounted for under ASC 842 are not in the scope of ASU No.

We adopted the provisions of ASU 2016-13 and the related ASUs as of January 1, 2020 using a modified retrospective approach, which resulted in no cumulative effect adjustment to retained earnings as of January 1, 2020.

An allowance for doubtful accounts is provided on accounts receivable for the expected credit loss over the life of the receivable based on historical credit losses, current business conditions, and reasonable and supportable forecasts.

In January 2017, the FASB issued ASU No.

2017-04 (“ASU 2017-04”), Intangibles – Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment .

This ASU eliminates Step 2 from goodwill impairment testing.

The goodwill impairment test will now consist of one step which compares the fair value of the reporting unit to the carrying value of the reporting unit and we would recognize an impairment loss if the carrying value exceeds the fair value but only to the extent of the amount of the goodwill allocated to the reporting unit.

We adopted the provisions of this ASU effective January 1, 2020.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848):

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

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

Acquisitions, Dispositions and Assets Held for Sale

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

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

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

(in millions)

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Total consideration

The estimated fair values for the assets acquired and the liabilities assumed are preliminary and are subject to change during the one-year measurement period as additional information related to the inputs and assumptions used in determining the fair value of the assets and liabilities becomes available.

We will continue to review the underlying inputs and assumptions.

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

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

We used the following valuation methodologies, inputs and assumptions to estimate the fair value of the assets acquired and liabilities assumed:

Investment in hotel properties – We estimated the fair values of the land and improvements, buildings and improvements, and furniture, fixtures and equipment at the hotel properties by using a combination of the market, cost and income approaches.

Investment in hotel properties – The fair values of the land and improvements, buildings and improvements, and furniture, fixtures and equipment at the hotel properties were determined using a combination of the market, cost and income approaches.

These valuation methodologies are based on significant Level 3 inputs in the fair value hierarchy, such as estimates of future income growth, capitalization rates, discount rates, capital expenditures and cash flow projections at the respective hotel properties.

Intangible assets – We estimated the fair value of the air rights contract acquired as part of the Hyatt Regency Boston by calculating the present value of the difference between the contractual rental amounts according to the contract and the market rental rates for similar contracts, measured over a period equal to the remaining non-cancellable term of the contract.

Intangible assets – The fair value of the air rights contract acquired as part of the Hyatt Regency Boston were determined using the present value of the difference between the contractual rental amounts according to the contract and the market rental rates for similar contracts, measured over a period equal to the remaining non-cancellable term of the contract.

This valuation methodology is based on Level 3 inputs in the fair value hierarchy.

The intangible asset is amortized using the straight-line method over the remaining term of the contract.

Above and below market lease liabilities – We estimated the fair value of our above and below market lease liabilities by calculating the present value of the difference between the contractual rental amounts paid according to the in-place lease agreements and the market rental rates for similar leased space, measured over a period equal to the remaining non-cancellable terms of the leases.

Above and below market lease liabilities – The fair value of our above and below market lease liabilities were determined using the present value of the difference between the contractual rental amounts paid according to the in-place lease agreements and the market rental rates for similar leased space, measured over a period equal to the remaining non-cancellable terms of the leases.

This valuation methodology is based on Level 3 inputs in the fair value hierarchy.

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The above and below market lease liabilities are amortized as adjustments to ground rent expense over the remaining terms of the respective leases.

Operating lease right-of-use-asset and Operating lease liability – We estimated the fair value of the operating lease right-of-use asset and operating lease liability by calculating the present value of the fixed contractual rental amounts due over a period equal to the remaining non-cancellable terms of the leases.

Operating lease right-of-use-asset and Operating lease liability – The fair value of the operating lease right-of-use asset and operating lease liability were determined using the present value of the fixed contractual rental amounts due over a period equal to the remaining non-cancellable terms of the leases.

This valuation methodology is based on Level 3 inputs in the fair value hierarchy.

Debt – We estimated the fair value of the mortgage loans by calculating the present value of the remaining loan payments due over the term of the loans.

Debt – The fair value of the mortgage loans were determined using the present value of the remaining loan payments due over the term of the loans.

This valuation methodology is based on Level 3 inputs in the fair value hierarchy.

Restricted cash, accounts receivable, prepaid expenses and other assets, accounts payable and accrued expenses, due to hotel managers and other liabilities – The amounts constitute the carrying amounts of the assets acquired and the liabilities assumed, which we believe approximate fair value because of their short-term nature.

For the year ended December 31, 2019, we incurred $ 70 million in acquisition costs in connection with the Merger.

Acquisition costs primarily related to severance, transfer tax and fees for financial advisors, legal, accounting, tax and other professional services.

For the year ended December 31, 2020, we incurred an additional $ 9 million in acquisition costs in connection with the Merger, primarily related to transfer taxes based on new information received during the year.

For the year ended December 31, 2019, we incurred $ 70 million in acquisition costs in connection with the Merger primarily related to severance, transfer tax and fees for financial advisors, legal, accounting, tax and other professional services.

The Merger-related costs noted above are included in acquisition costs in our consolidated statements of comprehensive (loss) income.

The following unaudited condensed pro-forma financial information presents the results of operations as if the Merger had taken place on January 1, 2018.

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Operating income

From the date of Merger through December 31, 2019, we recognized $ 156 million of total revenues, $ 20 million of operating income and $ 16 million of net income related to the hotels acquired in connection with the Merger.

During the year ended December 31, 2019, we sold seven consolidated hotels listed in the table below, received total gross proceeds of $ 436 million and recognized a total gain, net of selling costs, of $ 19 million on these hotels which is included in gain on sales of assets, net in our consolidated statements of comprehensive income.

From the date of the Merger through December 31, 2019, we recognized $ 156 million of total revenues, $ 20 million of operating income and $ 16 million of net income related to the hotels acquired in connection with the Merger.

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

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

Pointe Hilton Squaw Peak Resort

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Ace Hotel Downtown Los Angeles

Los Angeles, CA

Los Angeles, California

December 2019

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Additionally, in November 2019, we and the other owners of the entity that own the Conrad Dublin sold our ownership interest in the entity that owns the hotel for a gross sales price of approximately $ 128 million, before customary closing adjustments and debt repayment, of which our pro rata share was approximately $ 61 million.

We recognized a net gain of approximately $ 44 million, which is included in other gain, net in our consolidated statements of comprehensive income.

We recognized a net gain of approximately $ 44 million, which is included in other (loss) gain, net in our consolidated statements of comprehensive (loss) income.

Additionally, on December 16, 2019, we terminated the ground lease for the Hilton Sheffield.

During the year ended December 31, 2018, we sold 12 consolidated hotels for total gross proceeds of $ 379 million.

We recognized a net gain of approximately $ 98 million, including the reclassification of a currency translation adjustment of $ 31 million from accumulated other comprehensive loss into earnings concurrent with the dispositions, which was included in gain on sales of assets, net in our consolidated statements of comprehensive income.

Additionally, in May 2018, we and the other owners of our unconsolidated affiliates that owned the Hilton Berlin hotel sold our interests for gross proceeds of approximately $ 375 million, before customary closing adjustments, of which our pro rata share was approximately $ 151 million.

We recognized a net gain of approximately $ 107 million, including the reclassification of a currency translation adjustment of $ 8 million from accumulated other comprehensive loss into earnings concurrent with the disposition, which is included in other gain, net in our consolidated statements of comprehensive income.

We recognized a net gain of approximately $ 107 million, including the reclassification of a currency translation adjustment of $ 8 million from accumulated other comprehensive loss into earnings concurrent with the disposition, which is included in other (loss) gain, net in our consolidated statements of comprehensive (loss) income.

Assets Held for Sale

In November 2019, we executed an agreement to sell the Hilton São Paolo, a wholly owned hotel, which subsequently sold in February 2020 for a gross sales price of 500 million Brazilian Real or approximately $ 118 million, which was payable in cash at closing and is subject to customary pro rations and adjustments.

In November 2019, we executed an agreement to sell the Hilton São Paolo, a wholly owned hotel, which subsequently sold in February 2020 for a gross sales price of 500 million Brazilian Real or approximately $ 118 million, which was payable in cash at closing and was subject to customary pro rations and adjustments.

Assets and liabilities held for sale related to the Hilton São Paolo were as follows as of December 31, 2019:

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Accounts receivable

Prepaid expenses

Total Assets Held for Sale

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Property and equipment were:

December 31, 2019 (1)

December 31, 2018

(in millions)

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Depreciation of property and equipment was $ 297 million, $ 262 million and $ 273 million during the years ended December 31, 2020, 2019 and 2018, respectively.

For the year ended December 31, 2020, we recognized $ 90 million of impairment losses, primarily related to one of our hotels, and our inability to recover the carrying value of the asset because of COVID-19.

Refer to Note 8:

“Fair Value Measurements” for additional information.

Transactions with HGV

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Due to our continuing involvement, this transaction was not recognized as a sale and was accounted for as a sales-leaseback liability under the financing method.

The assets were derecognized at the end of lease term in December 2019 .

Pursuant to an arrangement representing a lease, we reserved exclusive rights to occupy and operate these rooms beginning on the date of transfer and continuing until the end of the lease term.

Pursuant to an arrangement representing a lease, we reserved exclusive rights to occupy and operate these rooms beginning on the date of transfer and continuing

until the end of the lease term , which expired on December 31, 2019 .

During 2017, 134 of the 600 rooms at the Hilton Waikoloa Village previously transferred to HGV and leased back by us were released to HGV;

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During 2018, we transferred a restaurant at the Hilton Waikoloa Village to HGV and derecognized $ 3 million of property and equipment, net and $ 3 million of the related liability due to HGV.

During 2019, the remaining 466 rooms at the Hilton Waikoloa Village were released to HGV;

accordingly, we derecognized $ 123 million of property and equipment, net, and the related $ 135 million liability due to HGV, and recognized a gain of $ 12 million within o ther gain, net in our consolidated statements of comprehensive income.

On December 31, 2019, the remaining 466 rooms at the Hilton Waikoloa Village were released to HGV and we derecognized $ 123 million of property and equipment, net, and the related $ 135 million liability due to HGV, and recognized a gain of $ 12 million within o ther (loss) gain, net in our consolidated statements of comprehensive (loss) income.

Hurricanes Irma and Maria

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Our insurance coverage provides us with reimbursement for the replacement cost for the damage to these hotels, which includes certain clean-up and repair costs, exceeding the applicable deductibles, in addition to loss of business.

Claims related to the Hilton Caribe were fully settled in December 2019.

Claims related to the Hilton Caribe were fully settled in December 2019 , and claims related to our Florida hotels were fully settled in January 2021.

During the year ended December 31, 2019, w e recognized $ 70 million of insurance recoveries, of which $ 39 million related to property damage, $ 28 million related to business interruption, and $ 3 million related to expense reimbursements.

Business interruption proceeds are included within ancillary hotel revenue in our consolidated statements of comprehensive income.

Additionally, we 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.

The insurance receivable as of December 31, 2019 and 2018 was $ 4 million and $ 25 million, respectively, and is included within other assets in our consolidated balance sheets.

Business interruption proceeds are included within ancillary hotel revenue in our consolidated statements of comprehensive (loss) income.

Additionally, 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 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.

The insurance receivable as of December 31, 2019 was $ 4 million and is included within other assets in our consolidated balance sheets.

During the year ended December 31, 2018, we incurred $ 35 million of expenses, and based upon additional information obtained during the period, we recognized an additional loss of $ 22 million for property and equipment that was damaged during the hurricanes.

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

December 31, 2019

December 31, 2018

(in millions)

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Other liabilities

During the years ended December 31, 2019 and 2018, we did not provide any financial or other support to these VIEs that we were not previously contractually required to provide, nor do we intend to provide any such support in the future.

Unconsolidated Entities

Investments in affiliates were:

December 31, 2019

December 31, 2018

(in millions)

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

The affiliates in which we own investments accounted for under the equity method had total debt of approximately $ 943 million and $ 955 million as of December 31, 2019 and 2018, respectively.

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

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

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Hilton allocated $ 3.5 billion of goodwill to us as part of the Blackstone Merger and during the year ended December 31, 2008, we recognized a $ 2.7 billion impairment loss.

Additionally, we typically evaluate the carrying value of our goodwill annually.

Refer to Note 8:

“Fair Value Measurements” for additional information.

Our goodwill balance and related activity was:

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Balance as of December 31, 2018

Distribution to Parent

Foreign currency translation

Impairment loss

Balance as of December 31, 2019

Distribution to Parent

Foreign currency translation

Impairment loss

Balance as of December 31, 2020

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(in millions)

Acquired below market leases (1)

Air rights contract ( 1)

Accumulated amortization

Upon adoption of ASC 842, Leases, on January 1, 2019, the balance of acquired below market leases was reclassed to Operating lease right-of-use asset within our consolidated balance sheet.

In conjunction with the Merger, we acquired an air rights contract as part of the Hyatt Regency Boston, which expires in September 2079 and requires no payments through maturity.

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2019 Term Facility ( 4)

September 2024

December 2021 (2)

Capital lease obligations

Revolver ( 4)

2021 to 2023 (5)

2025 Senior Secured Notes

2028 Senior Secured Notes

Finance lease obligations

unamortized premium

unamortized deferred financing costs and

Includes $ 308 million of mortgage loans assumed in connection with the Merger, all of which require payments of principal and interest on a monthly basis.

unamortized deferred financing costs and discount

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

$ 1 billion available.

The mortgage loan for Hilton Denver City Center matures in 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 .

Beginning April 2021, the interest rate on the loan will be accrued at the default rate of 6.55 %.

In September 2020, the 2016 Term Loan was fully repaid.

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

In September 2020, we increased our aggregate commitments under the Revolver by $ 75 million to $ 1.075 billion and extended the maturity date with respect to $ 901 million of the aggregate commitments for two years to December 2023 , including all $ 75 million of the increased Revolver commitments.

The maturity date for the remaining $ 174 million of commitments under the Revolver is December 2021 .

CMBS and Mortgage Loans

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As of December 31, 2020 and 2019, our consolidated balance sheets included $ 5 million and $ 13 million of restricted cash, respectively, related to our CMBS loans and mortgage loans.

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

The maturity date for the mortgage loan secured by the Doubletree Spokane, originally set to mature in October 2020 , was deferred to October 2021, with default interest beginning to accrue in April 2021.

Additionally, in January 2021, we ceased making debt service payments for the $ 76 million mortgage loan secured by the W Chicago City Center.

Failure to make debt service payments constitutes an event of default.

While we hope to negotiate an amendment with the lender, there can be no assurances that such an agreement will be reached.

Credit Facilities

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In December 2016, we entered into a credit agreement (“Credit Agreement”) with Wells Fargo Bank, National Association as administrative agent, and certain others financial institutions party thereto as lenders.

The facility includes a $ 1 billion revolving credit facility (“Revolver”), which has a scheduled maturity date of December 24, 2020 with two , six-month extension options if certain conditions are satisfied, and a $ 750 million term loan (“2016 Term Loan”).

The Credit Agreement includes the option to increase the size of the Revolver and enter into additional incremental term loan credit facilities, subject to certain limitations, in an aggregate commitment or principal amount not to exceed $ 500 million for all such increases.

In December 2019, we prepaid $ 50 million of the 2016 Term Loan.

The Revolver permits one or more standby letters of credit, up to a maximum aggregate outstanding balance of $ 50 million, to be issued on behalf of us.

Any outstanding standby letters of credit reduce the available borrowings on the Revolver by a corresponding amount.

Revolver and 2016 Term Loan borrowings bear interest at variable rates at our option, based upon either a base rate or LIBOR rate, plus an applicable margin based on our leverage ratio.

The facility included a $ 1 billion Revolver, which was increased to $ 1.075 billion in September 2020, and our 2016 Term Loan .

The Revolver and 2016 Term Loan borrowings bear interest at variable rates at our option, based upon either a base rate or LIBOR rate, plus an applicable margin based on our leverage ratio.

We incur an unused facility fee on the Revolver of between 0.2 % and 0.3 %, based on our level of usage.

The Credit Agreement contains certain financial covenants relating to our maximum leverage ratio, minimum fixed charge coverage ratio, maximum secured leverage ratio, maximum unsecured indebtedness to unencumbered asset value and minimum unencumbered adjusted net operating income to unsecured interest coverage.

If an event of default exists, we are not permitted to make distributions to shareholders, other than those required to qualify for and maintain REIT status.

The Credit Agreement also contains certain financial covenants including a maximum leverage ratio, minimum fixed charge coverage ratio, maximum secured leverage ratio, maximum unsecured indebtedness to unencumbered asset value ratio and minimum unencumbered adjusted net operating income to unsecured interest coverage ratio.

Additionally, the Revolver permits one or more standby letters of credit, up to a maximum aggregate outstanding balance of $ 50 million, to be issued on behalf of us.

Any outstanding standby letters of credit reduce the available borrowings on the Revolver by a corresponding amount.

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

We subsequently repaid $ 399 million of the Revolver using $ 299 million of the proceeds from the issuance of the 2025 Senior Secured Notes and 2028 Senior Secured Notes and $ 100 million of existing cash.

We also used $ 631 million of the proceeds from the issuance of the 2028 Senior Secured Notes to repay all of the amounts outstanding under our 2016 Term Loan.

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

In September 2020, we further amended our Revolver and our unsecured delayed draw term loan facility (“2019 Term Facility”) to extend the waiver period for the testing of the financial covenants to the date the financial statements are delivered for the quarter ended March 31, 2022.

As part of the amendment process, we (i) increased commitments under the Revolver by $ 75 million to $ 1.075 billion and extended the maturity date with respect to $ 901 million of the aggregate commitments for two years to December 2023 , including all $ 75 million of the increased Revolver commitments, (ii) extended the temporary periods for which certain financial covenants are adjusted once quarterly testing of financial covenants resumes, (iii) increased the mandatory repayment carve out for equity issuances from $ 500 million to $ 1 billion, so long as proceeds from the issuances are used for capital expenditures and hotel acquisitions that become part of the unencumbered pool, (iv) maintained the existing guarantees by certain Park-affiliated entities until repayment of the Revolver and 2019 Term Facility and existing pledges of equity interests in Park-affiliated entities owning certain unencumbered assets during the extended waiver period and until the ratio of net debt to EBITDA falls below 6.50x for two consecutive quarters, (v) extended the minimum liquidity covenant through December 2022 and increased the minimum liquidity required to be maintained through December 24, 2021 from $ 200 million to $200 million plus 50 % of the Revolver commitments that mature in December 2021 (which minimum liquidity covenant amount as of December 31, 2020 was $ 287 million ), (vi) obtained the ability to pay a $ 0.01 per share per fiscal quarter dividend during the extended waiver period and (vii) modified certain restrictions and covenants for the duration of the extended waiver period, including certain mandatory prepayments.

The September 2020 amendment also contained limitations on our ability to make dividends and distributions (except to the extent required to maintain REIT status, the ability of the Park Parent to pay a $ 0.01 per

share per fiscal quarter dividend and certain other agreed exceptions).

We incurred $ 6 million of fees related to these amendments during the year ended December 31, 2020 that were recognized as deferred financing costs.

2019 Term Facility

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

In advance of the Merger, in August 2019, the Company, our Operating Company and PK Domestic entered into the 2019 Term Facility with Bank of America, N.A.

as administrative agent, and certain other financial institutions party thereto as lenders.

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

Senior Secured Notes

2025 Senior Secured Notes

In May 2020, our Operating Company, PK Domestic and PK Finance issued an aggregate of $ 650 million of 2025 Senior Secured Notes.

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

The 2025 Senior Secured Notes bear interest at a rate of 7.500 % per annum, payable semi-annually in arrears on June 1 and December 1 of each year, beginning December 1, 2020.

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

We capitalized $ 13 million of issuance costs during the year ended December 31, 2020.

We may redeem the 2025 Senior Secured Notes at any time prior to June 1, 2022 , in whole or in part, at a redemption price equal to 100 % of the principal amount thereof plus accrued and unpaid interest, if any, to the redemption date plus a make-whole premium.

On or after June 1, 2022, we may redeem the 2025 Senior Secured Notes, in whole or in part, at the applicable redemption prices set forth in the indenture.

On or after June 1, 2024 , we may redeem the 2025 Senior Secured Notes at 100 % of the principal amount, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

In addition, before June 1, 2022, we may redeem up to 40 % of the 2025 Senior Secured Notes with the net cash proceeds from certain equity offerings at a redemption price of 107.500 % of the principal amount redeemed.

2028 Senior Secured Notes

In September 2020, our Operating Company, PK Domestic LLC and the PK Finance issued an aggregate of $ 725 million of 2028 Senior Secured Notes.

The 2028 Senior Secured Notes bear interest at a rate of 5.875 % per annum, payable semi-annually in arrears on April 1 and October 1 of each year beginning April 1, 2021.

Net proceeds 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.

We capitalized $ 13 million of issuance costs during the year ended December 31, 2020.

We may redeem the 2028 Senior Secured Notes at any time prior to October 1, 2023 , in whole or in part, at a redemption price equal to 100 % of the principal amount thereof plus accrued and unpaid interest, if any, to the redemption date plus a make-whole premium.

On or after October 1, 2023, we may redeem the 2028 Senior Secured Notes, in whole or in part, at the applicable redemption prices set forth in the indenture.

On or after October 1, 2025 , we may redeem the 2028 Senior Secured Notes at 100% of the principal amount, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

In addition, before October 1, 2023, we may redeem up to 40 % of the 2028 Senior Secured Notes with the net cash proceeds from certain equity offerings at a redemption price of 105.875 % of the principal amount redeemed.

Both the 2025 Senior Secured Notes and the 2028 Senior Secured Notes (collectively, the “Senior Secured Notes”) are guaranteed by us and by the subsidiaries of our Operating Company that also guarantee indebtedness under our credit facilities and the guarantees are full and unconditional and joint and several.

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

The indentures governing the Senior Secured Notes contain customary covenants that limit the issuers’ ability and, in certain instances, the ability of the issuers’ subsidiaries, to borrow money, create liens on assets, make distributions and pay dividends on or redeem or repurchase stock, make certain types of investments, sell stock in certain subsidiaries, enter into agreements that restrict dividends or other payments from subsidiaries, enter into transactions with affiliates, issue guarantees of indebtedness, and sell assets or merge with other companies.

These covenants are subject to a number of exceptions and qualifications, including the ability to declare or pay any cash dividend or make any cash distribution to us to the extent necessary for us to fund a dividend or distribution by us that we believe is necessary to maintain our status as a REIT or to avoid payment of any tax for any calendar year that could be avoided by reason of such distribution, and the ability to make certain restricted payments not to exceed $ 100.0 million, plus 95 % of our cumulative Funds From Operations (as defined in the indenture), plus the aggregate net proceeds from (i) the sale of certain equity interests in, (ii) capital contributions to, and (iii) certain convertible indebtedness of the Operating Company.

In addition, the indenture requires our Operating Company to maintain total unencumbered assets as of each fiscal quarter of at least 150 % of total unsecured indebtedness, in each case calculated on a consolidated basis.

Debt Maturities

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Thereafter ( 2)

Represents $ 96 million of the current outstanding balance under the Revolver;

however, we have sufficient capacity with extended undrawn commitments under the Revolver to effectively extend for two years .

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

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2019 Term Facility

2025 Senior Secured Notes

2028 Senior Secured Notes

Mortgage loans

During the year ended December 31, 2020, we recognized impairment losses for goodwill and for certain assets resulting from a significant decline in market value of those assets due to the effects from the COVID-19 pandemic.

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

December 31, 2020

Impairment Loss

(in millions)

Property and equipment ( 1)

Goodwill ( 2)

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

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

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

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

We lease hotel properties, land and equipment under operating and financing leases.

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Total operating lease liabilities

As of December 31, 2019 the weighted average remaining operating lease term was 26.3 years and the weighted average discount rate used to determine the operating lease liabilities was 5.3 %.

The components of rent expense, which are primarily included in other property-level expenses in our consolidated statements of comprehensive income, supplemental cash flow and non-cash information for all operating leases were:

Year Ended December 31, 2019

As of December 31, 2020 and 2019, the weighted average remaining operating lease term was 26.5 years and 26.3 years, respectively, and the weighted average discount rate used to determine the operating lease liabilities was 5.3 % for both periods.

The components of rent expense, which are primarily included in other property-level expenses in our consolidated statements of comprehensive (loss) income, as well as supplemental cash flow and non-cash information for all operating leases were:

December 31, 2020

December 31, 2019

(in millions)

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For the year ended December 31, 2019, balance represents right-of-use assets recognized upon adoption of ASC 842, Leases, on January 1, 2019, and right-of-use assets assumed in connection with the Merger.

We are treated as a REIT for U.S.

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

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.

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Accordingly, no provision for U.S.

federal income taxes has been included in our accompanying consolidated financial statements for the years ended December 31, 2019 and 2018 related to our REIT activities, other than taxes associated with built-in gains related to our assets owned at the date of our spin-off including the remeasurement of associated deferred tax assets and liabilities.

We will be subject to U.S.

federal income tax on taxable sales of built-in gain property during the five-year period following the date of our spin-off.

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

income tax on foreign held REIT activities and certain sales of foreign investments.

Further, our taxable REIT subsidiaries (“TRSs”) are generally subject to U.S.

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

1, commonly referred to as The Tax Cuts and Jobs Act of 2017 (the “Act”) was enacted on December 22, 2017.

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and the treatment of global intangible low-taxed income for REIT gross income purposes.

As a result of the changes in the Act, we recognized a $ 25 million income tax benefit for the year ended December 31, 2017 and $ 8 million of income tax expense for the year ended December 31, 2018 when our analysis of the effects of the Act was completed.

We will be subject to U.S.

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

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

income tax on foreign held REIT activities.

Further, our taxable REIT subsidiaries (“TRSs”) are generally subject to U.S.

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

As a result of the changes in the Act, we recognized $ 8 million of income tax expense for the year ended December 31, 2018 when our analysis of the effects of the Act was completed.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020 and included several tax provisions that may impact us and our subsidiaries, including:

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

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

a “technical correction” amending Code section 168(e)(3)(E) to add “qualified improvement property” to “15-year property” and assigning a class life of 20-years under section 168(g)(3)(B) to qualified improvement property under section 168(e)(3)(E)(vii), and

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

Our tax provision includes U.S.

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(in millions)

income before tax

Foreign income before tax

Income before income taxes

(loss) income before tax

Foreign (loss) income before tax

(Loss) income before income taxes

The components of our (benefit) provision for income taxes were:

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Total deferred

Total provision (benefit) for income taxes

Total (benefit) provision for income taxes

Reconciliations of our tax provision at the U.S.

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Statutory U.S.

federal income tax provision

federal income tax (benefit) provision

State income taxes, net of U.S.

federal tax benefit

Foreign income tax expense

Foreign income tax expense, net

Change in deferred tax asset valuation allowance

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Derecognition and remeasurement of deferred taxes

Provision (benefit) for income taxes

Recognized built-in gain tax

(Benefit) provision for income taxes

Deferred income taxes represent the tax effect of the differences between the book and tax bases of assets and liabilities plus carryforward items.

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As of December 31, 2020, we had U.S.

federal, state and foreign net operating loss carryforwards of $ 65 million, which resulted in deferred tax assets of $ 9 million.

federal and state net operating loss carryforwards of approximately $ 18 million and $ 24 million begin to expire in 2038 and 2025 , respectively, and our foreign net operating loss carryforwards of approximately $ 23 million are not subject to expiration.

federal and state net operating loss carryforwards of $ 1 billion, which resulted in deferred tax assets of $ 74 million.

federal and state net operating loss carryforwards of approximately $ 575 million and $ 452 million begin to expire in 2038 and 2025 , respectively.

Our valuation allowance increased $ 71 million during the year ended December 31, 2020.

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The timing of the resolution of tax audits is highly uncertain, as are the amounts, if any, that may ultimately be paid upon such resolution.

Changes may result from the conclusion of ongoing audits, appeals or litigation in U.S.

result from the conclusion of ongoing audits, appeals or litigation in U.S.

federal, state, local, and foreign tax jurisdictions or from the resolution of various proceedings between the U.S.

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federal income tax purposes, the cash distributions to stockholders are characterized as follows:

For the Year Ended

December 31, 2019

December 31, 2018

Year Ended December 31,

Common distributions (per share):

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Capital gain distributions ( 1)

Capital gain distribution disclosure pursuant to Treasury Regulation §1.1061-6(c).

The following additional information relates to the capital gain distribution for calendar year 2020, as reported on Park Hotels & Resorts Inc.

Form 1099-DIV, Box 2a.

For purposes of Internal Revenue Code Section 1061, which is generally applicable to direct and indirect holders of “applicable partnership interests,”:

(i) the “One Year Amounts” are $ 0.205429 per share, and (ii) the “Three Year Amounts” are $ 0.205429 per share, with respect to the 2020 capital gain distribution.

Share-Based Compensation

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The 2017 Director Plan provides that a maximum of 450,000 shares of our common stock may be issued, and as of December 31, 2020, 72,982 shares of common stock remain available for future issuance.

For each of the years ended December 31, 2019 and 2018, we recognized $ 16 million, respectively, of share-based compensation expense and $ 15 million for the year ended December 31, 2017.

For the year ended December 31, 2020, we recognized $ 20 million of share-based compensation expense and for the years ended December 31, 2019 and 2018, we recognized $ 16 million of share-based compensation expense, respectively.

As of December 31, 2020, unrecognized compensation expense was $ 21 million, which is expected to be recognized over a weighted-average period of 2.2 years.

The total fair value of shares vested during the year ended December 31, 2019 was $ 21 million and $ 9 million for each of the years ended December 31, 2018 and 2017.

The total fair value of shares vested (calculated as the number of shares multiplied by the vesting date share price) during the years ended December 31, 2020, 2019 and 2018 was $ 27 million, $ 21 million and $ 9 million, respectively.

Restricted Stock Awards

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The number of PSUs that may become vested ranges from zero to 200 % of the number of PSUs granted to an employee, based on the level of achievement of the foregoing performance measure.

Additionally, in February 2020, we granted special awards with a one-year performance period that are subject to the achievement of a total shareholder return similar to the three-year awards, and, in addition, are subject to the achievement of a performance condition for certain cost synergies associated with the Merger.

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

Neither metric was met and thus no compensation expense was recognized for the Merger cost synergies element for the year ended December 31, 2020.

In November 2020, we granted special awards with vesting of these awards subject to the achievement of eight increasing levels of our average closing sales price per share, from $ 11.00 to $ 25.00 , over a consecutive 20 trading day period (“Share Price Target”).

One-eighth of PSUs will vest at each date a Share Price Target is achieved and any PSUs remaining after a four-year performance period will be forfeited.

As of December 31, 2020, four of the eight Share Price Targets were achieved and thus 50 % of the awards granted were vested.

The following table provides a summary of PSUs for the years ended December 31, 2020, 2019 and 2018:

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Unvested at December 31, 2020

The grant date fair values of these awards were determined using a Monte Carlo simulation valuation model with the following assumptions:

The grant date fair values of the awards that are subject to the achievement of market conditions based on total shareholder return or our stock price were determined using a Monte Carlo simulation valuation model with the following assumptions:

Year Ended December 31,

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Expected term

Due to limited trading history of our common stock, we used the historical and implied volatilities of our peer group in addition to our historical and implied volatilities over the performance period to estimate appropriate expected volatilities.

For the years ended December 31, 2020, 2019 and 2018, the weighted average expected volatility was 46.2 %, 20.5 % and 24.0 %, respectively.

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(in millions, except per share amounts)

Net income attributable to stockholders (1)

Earnings allocated to participating securities

Net income attributable to stockholders, net of earnings

Net (loss) income attributable to stockholders

Earnings attributable to participating securities

Net (loss) income attributable to stockholders, net of earnings

allocated to participating securities

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Unvested restricted shares

Net effect of shares issued with respect to E&P Dividend (2)

Weighted average shares outstanding – diluted

Basic EPS (3)

Diluted EPS (3)

Includes the derecognition and remeasurement of deferred tax assets and liabilities for the year ended December 31, 2017 of $ 2,347 million associated with our intent to be taxed as a REIT.

Shares issued in connection with the distribution of our C corporation earnings and profits attributable to the period prior to spin-off “E&P Dividend”).

(Loss) Earnings per share - Basic ( 1)

(Loss) Earnings per share - Diluted ( 1)

Per share amounts are calculated based on unrounded numbers.

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Additionally, the management and franchise agreements generally require a marketing fee equal to a percentage of rooms revenues.

Total marketing fees were $ 53 million, $ 53 million and $ 55 million for the years ended December 31, 2019, 2018 and 2017, respectively, and were included in other departmental and support expense in our consolidated statements of comprehensive income.

Total marketing fees were $ 15 million, $ 53 million and $ 53 million for the years ended December 31, 2020, 2019 and 2018, respectively, and were included in other departmental and support expense in our consolidated statements of comprehensive (loss) income.

Employee Cost Reimbursements

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All of these plans are the responsibility of our managers and our obligation is only for the reimbursement of these costs for individuals who work at our hotel properties.

Total employee cost reimbursements were $ 133 million, $ 134 million and $ 131 million for the years ended December 31, 2019, 2018 and 2017, respectively, and were included in the respective operating expenses line item in our consolidated statements of comprehensive income based upon the nature of services provided by such employees.

Net Parent Investment

Net Parent investment on our historical consolidated statements of equity represents Hilton’s historical investment in us, the net effect of transactions with and allocations from Hilton and our accumulated earnings.

Net transfers to Parent are included within Net Parent investment.

There were no transfers to Parent during the years ended December 31, 2019 and 2018.

The components of the net transfers to Parent on the consolidated statements of cash flows and consolidated statements of equity were:

Year Ended December 31,

(in millions)

Cash pooling and general financing activities

Corporate allocations

Net transfers to Parent

Total employee cost reimbursements were $ 57 million, $ 133 million and $ 134 million for the years ended December 31, 2020, 2019 and 2018, respectively, and were included in the respective operating expenses line item in our consolidated statements of comprehensive (loss) income based upon the nature of services provided by such employees.

Geographic and Business Segment Information

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Our unconsolidated hotels operating segment does not meet the definition of a reportable segment, thus our consolidated hotels is our only reportable segment.

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

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

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

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

Gains or losses on foreign currency transactions;

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.

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

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

Year Ended December 31,

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Total revenues

Hotel Adjusted EBITDA

Net (loss) income

Other revenues

Casualty gain (loss) and impairment loss, net

Impairment loss and casualty (gain) loss, net

Depreciation and amortization expense

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Interest expense

Equity in earnings from investments in affiliates

Loss on foreign currency transactions

Income tax (expense) benefit

Other gain, net

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

Equity in losses (earnings) from investments in affiliates

Income tax (benefit) expense

Other loss (gain), net

Severance expense

Hotel Adjusted EBITDA

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

(in millions)

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United States ( 2)

Includes revenues of $ 11 million, $ 14 million and $ 13 million for the years ended December 31, 2019, 2018 and 2017 from our laundry operations which is not part of our segment.

Also includes property and equipment, net of $ 5 million as of December 31, 2019, 2018 and 2017, respectively, from our laundry operations.

Excludes $ 62 million and $ 31 million of property and equipment, net classified as held for sale as of December 31, 2019 and 2017, respectively.

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

Includes revenues of $ 2 million, $ 11 million and $ 14 million for the years ended December 31, 2020, 2019 and 2018 from our laundry operations, which is not part of our segment and was permanently closed as of December 31, 2020.

Also includes property and equipment, net of $ 2 million, $ 5 million and $ 5 million as of December 31, 2020, 2019 and 2018, respectively, from our laundry operations.

Commitments and Contingencies

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If cancellation of a contract occurred, our commitment would be any costs incurred up to the cancellation date, in addition to any costs associated with the discharge of the contract.

We may make certain indemnifications or guarantees to select buyers of our hotels as part of the sale process.

In addition, losses related to certain contingent liabilities could be apportioned to us under the distribution and tax matters agreements related to the spin-off transaction.

We are involved in litigation arising from the normal course of business, some of which includes claims for substantial sums.

We are involved in litigation arising from the normal course of business, some of which includes claims for substantial sums, and may make certain indemnifications or guarantees to select buyers of our hotels as part of a sale process.

We are also involved in claims and litigation that is not in the ordinary course of business in connection with the spin-off from Hilton.

The spin-off agreements indemnify us from certain of these claims as well as require us to indemnify Hilton.

The spin-off agreements indemnify us from certain of these claims as well as require us to indemnify Hilton for other claims.

In addition, losses related to certain contingent liabilities could be apportioned to us under the spin-off agreements.

In connection with our obligation to indemnify Hilton under the spin-off agreements, we have reserved approximately $ 19 million related to ongoing claims as of December 31, 2020 with respect to an audit by the Australian Tax Office (“ATO”) related to the sale of the Hilton Sydney in June 2015.

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We declared $ 206 million of dividends that were unpaid and accrued as of December 31, 2018.

During the year ended December 31, 2017:

We transferred rooms at the New York Hilton Midtown and Hilton Waikoloa Village to HGV and accordingly derecognized $ 70 million of property and equipment, net and $ 72 million of the related liability due to HGV.

We issued $ 441 million in shares of common stock in connection with our E&P stock dividend.

We declared $ 120 million of dividends that were unpaid and accrued as of December 31, 2017.

Selected Quarterly Financial Information (unaudited)

The following table sets forth the historical unaudited quarterly financial data for the periods indicated.

The information for each of these periods has been prepared on the same basis as the audited consolidated financial statements and, in our opinion, reflects all adjustments necessary to present fairly our financial results.

Operating results for previous periods do not necessarily indicate results that may be achieved in any future period.

(in millions)

Operating income

Net income attributable to stockholders

Earnings per share - Basic (1)

Earnings per share - Diluted (1)

Per share amounts are calculated based on unrounded numbers and are calculated independently for each period presented, therefore, the sum of the quarterly EPS does not necessarily equal the EPS for the full year.

(in millions)

Operating income

Net income attributable to stockholders

Earnings per share - Basic (1)

Earnings per share - Diluted (1)

Subsequent Events

On February 19, 2020, we sold the 503 -room Hilton São Paulo Morumbi for gross proceeds of approximately $ 118 million, or $ 234,000 per key.

Upon the sale of this hotel, we no longer have any international hotels in our portfolio.

Additionally, on the same day, we sold the 197 -room Embassy Suites Washington DC Georgetown for gross proceeds of approximately $ 90 million, or $ 459,000 per key.

Park Hotels & Resorts Inc.

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Subsequent to

Acquired ( 1)

Caribe Hilton

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New York Hilton Midtown

Embassy Suites Washington DC

DoubleTree Hotel Washington DC—Crystal

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Hilton Orlando Bonnet Creek

On October 24, 2007, a predecessor to our Parent became a wholly owned subsidiary of an affiliate of Blackstone following the completion of the Blackstone Merger.

Single $ 725 million CMBS loan secured by Hilton San Francisco Union Square and Parc 55 San Francisco – A Hilton Hotel.

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Subsequent to

Acquired ( 1)

Parc 55 San Francisco - A Hilton Hotel

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On October 24, 2007, a predecessor to our Parent became a wholly owned subsidiary of an affiliate of Blackstone following the completion of the Blackstone Merger.

Single $725 million CMBS loan secured by Hilton San Francisco Union Square and Parc 55 San Francisco – A Hilton Hotel.

Park Hotels & Resorts Inc.

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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 8. Financial Statements and Supplementary Data