Park Hotels & Resorts Inc. 10-K

Item 8. Financial Statements and Supplementary Data. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Management’s Report on Internal Control Over Financial Reporting 54 Reports of Independent Registered Public Accounting Firm 55 Consolidated Balance Sheets as of December 31, 2020 and 2019 58 Consolidated Statements of Comprehensive (Loss) Income for the Years Ended December 31, 2020, 2019 and 2018 59 Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018 60 Consolidated Statements of Equity for the Years Ended December 31, 2020, 2019 and 2018 61 Notes to Consolidated Financial Statements 62 Schedule III – Real Estate and Accumulated Deprecation 89 53 Management’s Report on Internal Control Over Financial Reporting Management of Park Hotels & Resorts Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The Company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets of the Company that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013). Based on this assessment, management determined that the Company maintained effective internal control over financial reporting as of December 31, 2020. Ernst & Young LLP, the independent registered public accounting firm that has audited the consolidated financial statements included in this Annual Report on Form 10-K, has issued an attestation report on the Company’s internal control over financial reporting as of December 31, 2020. The report is included herein. 54 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors of Park Hotels & Resorts Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Park Hotels & Resorts Inc. (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. generally accepted accounting principles. 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. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. 55 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 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 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. 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 We have served as the Company’s auditor since 2016. Tysons, Virginia February 26, 2021 56 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Park Hotels & Resorts Inc. Opinion on Internal Control over Financial Reporting We have audited Park Hotels & Resorts Inc.’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) (the COSO criteria). In our opinion, Park Hotels & Resorts Inc. (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, 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 The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Tysons, Virginia February 26, 2021 57 PARK HOTELS & RESORTS INC. CONSOLIDATED BALANCE SHEETS (in millions, except share and per share data) December 31, 2020 2019 ASSETS Property and equipment, net $ 9,193 $ 9,594 Assets held for sale, net — 71 Investments in affiliates 14 35 Goodwill — 607 Intangibles, net 45 46 Cash and cash equivalents 951 346 Restricted cash 30 40 Accounts receivable, net of allowance for doubtful accounts of $ 3 and $ 2 26 180 Prepaid expenses 39 83 Other assets 60 40 Operating lease right-of-use assets 229 248 TOTAL ASSETS (variable interest entities - $ 229 and $ 242 ) $ 10,587 $ 11,290 LIABILITIES AND EQUITY Liabilities Debt $ 5,121 $ 3,871 Accounts payable and accrued expenses 147 217 Due to hotel managers 88 159 Deferred income tax liabilities 10 50 Other liabilities 134 282 Operating lease liabilities 244 260 Total liabilities (variable interest entities - $ 213 and $ 219 ) 5,744 4,839 Commitments and contingencies - refer to Note 15 Stockholders' Equity Common stock, par value $ 0.01 per share, 6,000,000,000 shares authorized, 236,217,344 shares issued and 235,915,749 shares outstanding as of December 31, 2020 and 239,589,639 shares issued and 239,386,877 shares outstanding as of December 31, 2019 2 2 Additional paid-in capital 4,519 4,575 Retained earnings 376 1,922 Accumulated other comprehensive loss ( 4 ) ( 3 ) Total stockholders' equity 4,893 6,496 Noncontrolling interests ( 50 ) ( 45 ) Total equity 4,843 6,451 TOTAL LIABILITIES AND EQUITY $ 10,587 $ 11,290 Refer to the notes to the consolidated financial statements. 58 PARK HOTELS & RESORTS INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (in millions, except per share data) Year Ended December 31, 2020 2019 2018 Revenues Rooms $ 526 $ 1,764 $ 1,710 Food and beverage 189 743 713 Ancillary hotel 108 260 242 Other 29 77 72 Total revenues 852 2,844 2,737 Operating expenses Rooms 193 467 449 Food and beverage 173 518 495 Other departmental and support 359 638 627 Other property-level 258 219 207 Management fees 30 139 137 Impairment loss and casualty (gain) loss, net 696 ( 18 ) ( 1 ) Depreciation and amortization 298 264 277 Corporate general and administrative 63 62 65 Acquisition costs 10 70 — Other 36 78 73 Total expenses 2,116 2,437 2,329 Gain on sales of assets, net 62 19 96 Operating (loss) income ( 1,202 ) 426 504 Interest income 2 6 6 Interest expense ( 213 ) ( 140 ) ( 127 ) Equity in (losses) earnings from investments in affiliates ( 22 ) 14 18 Other (loss) gain, net ( 15 ) 45 99 (Loss) Income before income taxes ( 1,450 ) 351 500 Income tax benefit (expense) 6 ( 35 ) ( 23 ) Net (loss) income ( 1,444 ) 316 477 Net loss (income) attributable to noncontrolling interests 4 ( 10 ) ( 5 ) Net (loss) income attributable to stockholders $ ( 1,440 ) $ 306 $ 472 Other comprehensive (loss) income, net of tax expense: Currency translation adjustment, net of tax expense of $ 0 , $ 4 and $ 0 $ 4 $ 3 $ 39 Change in fair value of interest rate swap, net of tax expense of $ 0 ( 5 ) $ — $ — Total other comprehensive (loss) income ( 1 ) 3 39 Comprehensive (loss) income ( 1,445 ) 319 516 Comprehensive loss (income) attributable to noncontrolling interests 4 ( 10 ) ( 5 ) Comprehensive (loss) income attributable to stockholders $ ( 1,441 ) $ 309 $ 511 (Loss) Earnings per share: (Loss) Earnings per share - Basic $ ( 6.11 ) $ 1.44 $ 2.32 (Loss) Earnings per share - Diluted $ ( 6.11 ) $ 1.44 $ 2.31 Weighted average shares outstanding - Basic 236 212 203 Weighted average shares outstanding - Diluted 236 213 204 Refer to the notes to the consolidated financial statements. 59 PARK HOTELS & RESORTS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) Year Ended December 31, 2020 2019 2018 Operating Activities: Net (loss) income $ ( 1,444 ) $ 316 $ 477 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation and amortization 298 264 277 Gain on sales of assets, net ( 62 ) ( 19 ) ( 96 ) Impairment loss and casualty (gain) loss, net 696 ( 18 ) ( 1 ) Equity in losses (earnings) from investments in affiliates 22 ( 14 ) ( 18 ) Other loss (gain), net 15 ( 45 ) ( 99 ) Share-based compensation expense 20 16 16 Amortization of deferred financing costs 9 5 4 Distributions from unconsolidated affiliates 5 22 18 Deferred income taxes ( 30 ) 5 ( 20 ) Changes in operating assets and liabilities: Accounts receivable, net 152 ( 3 ) ( 27 ) Prepaid expenses 44 6 ( 34 ) Other assets ( 22 ) ( 20 ) ( 34 ) Accounts payable and accrued expenses ( 51 ) ( 28 ) ( 21 ) Due to hotel manager ( 71 ) 7 ( 4 ) Other liabilities ( 21 ) 10 14 Other 2 ( 5 ) ( 8 ) Net cash (used in) provided by operating activities ( 438 ) 499 444 Investing Activities: Acquisitions, net of cash and restricted cash acquired — ( 914 ) ( 10 ) Capital expenditures for property and equipment ( 86 ) ( 240 ) ( 178 ) Proceeds from asset dispositions, net 207 429 369 Proceeds from the sale of investments in affiliates, net 1 51 150 Insurance proceeds for property damage claims 1 39 88 Contributions to unconsolidated affiliates ( 4 ) — — Net cash provided by (used in) investing activities 119 ( 635 ) 419 Financing Activities: Proceeds from issuance of Senior Secured Notes 1,376 — — Borrowings from credit facilities 1,000 850 — Repayments of credit facilities ( 1,099 ) ( 232 ) — Repayments of mortgage debt ( 6 ) — — Debt issuance costs ( 39 ) ( 11 ) — Dividends paid ( 241 ) ( 494 ) ( 464 ) Distributions to noncontrolling interests, net ( 1 ) ( 9 ) ( 2 ) Tax withholdings on share-based compensation ( 10 ) ( 7 ) ( 2 ) Repurchase of common stock ( 66 ) — ( 348 ) Net cash provided by (used in) financing activities 914 97 ( 816 ) Effect of exchange rate changes on cash and cash equivalents and restricted cash — — ( 1 ) Net increase (decrease) in cash and cash equivalents and restricted cash 595 ( 39 ) 46 Cash and cash equivalents and restricted cash, beginning of period 386 425 379 Cash and cash equivalents and restricted cash, end of period $ 981 $ 386 $ 425 For supplemental disclosures, refer to Note 16: “Supplemental Disclosures of Cash Flow Information” Refer to the notes to the consolidated financial statements. 60 PARK HOTELS & RESORTS INC. CONSOLIDATED STATEMENTS OF EQUITY (in millions) Accumulated Additional Other Non- Common Stock Paid-in Retained Comprehensive controlling Shares Amount Capital Earnings (Loss) Income Interests Total Balance as of December 31, 2017 215 $ 2 $ 3,825 $ 2,229 $ ( 45 ) $ ( 49 ) $ 5,962 Share-based compensation, net — — 14 — — — 14 Net income — — — 472 — 5 477 Other comprehensive income — — — — 39 — 39 Dividends and dividend equivalents ( 1) — — — ( 556 ) — — ( 556 ) Repurchase of common stock ( 14 ) — ( 250 ) ( 98 ) — — ( 348 ) Distributions to noncontrolling interests — — — — — ( 2 ) ( 2 ) Balance as of December 31, 2018 201 2 3,589 2,047 ( 6 ) ( 46 ) 5,586 Issuance of common stock 38 — 978 — — — 978 Share-based compensation, net — — 8 — — — 8 Net income — — — 306 — 10 316 Other comprehensive income — — — — 3 — 3 Dividends and dividend equivalents ( 1) — — — ( 423 ) — — ( 423 ) Distributions to noncontrolling interests — — — — — ( 9 ) ( 9 ) Cumulative effect of change in accounting principle — — — ( 8 ) — — ( 8 ) Balance as of December 31, 2019 239 2 4,575 1,922 ( 3 ) ( 45 ) 6,451 Share-based compensation, net 1 — 10 — — — 10 Net loss — — — ( 1,440 ) — ( 4 ) ( 1,444 ) Other comprehensive loss — — — — ( 1 ) — ( 1 ) Dividends and dividend equivalents ( 1) — — — ( 106 ) — — ( 106 ) Repurchase of common stock ( 4 ) — ( 66 ) — — — ( 66 ) Distributions to noncontrolling interests — — — — — ( 1 ) ( 1 ) Balance as of December 31, 2020 236 $ 2 $ 4,519 $ 376 $ ( 4 ) $ ( 50 ) $ 4,843 (1) 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 $ 0.75 per common share were declared for the year ended December 31, 2018. Refer to the notes to the consolidated financial statements. 61 PARK HOTELS & RESORTS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1: Organization and Recent Events Organization Park Hotels & Resorts Inc. (“we,” “us,” “our” or the “Company”) is a Delaware corporation that owns a portfolio of premium-branded hotels and resorts primarily located in prime city center and resort locations. On January 3, 2017, Hilton Worldwide Holdings Inc. (“Hilton,” “Hilton Parent” or “Parent”) completed the spin-off of a portfolio of hotels and resorts that established Park Hotels & Resorts Inc. as an independent, publicly traded company. On May 5, 2019, the Company, PK Domestic Property LLC, an indirect subsidiary of the Company (“PK Domestic”), and PK Domestic Sub LLC, a wholly-owned subsidiary of PK Domestic (“Merger Sub”) entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) with Chesapeake Lodging Trust (“Chesapeake”). On September 18, 2019, pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Chesapeake merged with and into Merger Sub (the “Merger”) and each of Chesapeake’s common shares of beneficial interest, $ 0.01 par value per share was converted into $ 11.00 in cash and 0.628 of a share of our common stock. No fractional shares of our common stock were issued in the Merger. The value of any fractional interests to which a Chesapeake shareholder would otherwise have been entitled was paid in cash. We are a real estate investment trust (“REIT”) for United States (“U.S.”) federal income tax purposes. We have been organized and operated, and we expect to continue to be organized and operate, in a manner to qualify as a REIT. 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. 62 Note 2: Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation Principles of Consolidation The consolidated financial statements include the accounts of the Company, our wholly owned subsidiaries and entities in which we have a controlling financial interest, including variable interest entities (“VIEs”) where we are the primary beneficiary. The consolidated financial statements reflect our financial position, results of operations and cash flows, in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). All significant intercompany transactions and balances within these consolidated financial statements have been eliminated. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications 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 Property and Equipment Property and equipment are recorded at cost, and interest applicable to major construction or development projects is capitalized. Costs of improvements that extend the economic life or improve service potential are also capitalized. Capitalized costs are depreciated over their estimated useful lives. Costs for normal repairs and maintenance are expensed as incurred. Depreciation is recorded using the straight-line method over the assets’ estimated useful lives, which are generally as follows: buildings and improvements ( 8 to 40 years ); furniture and equipment ( 3 to 8 years ); and computer equipment and acquired software ( 3 years). Leasehold improvements are depreciated over the shorter of the estimated useful life, based on the estimates above, or the lease term. We evaluate the carrying value of our property and equipment if there are indicators of potential impairment. 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 (loss) 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. If sufficient information exists to reasonably estimate the fair value of a conditional asset retirement obligation, including environmental remediation liabilities, we recognize the fair value of the obligation when the obligation is incurred, which is generally upon acquisition, construction or development and/or through the normal operation of the asset. Assets Held for Sale We classify a property as held for sale when we commit to a plan to sell the asset, the sale of the asset is probable within one year, and it is unlikely that action to complete the sale will change or that the sale will be withdrawn. When we determine that classification of an asset as held for sale is appropriate, we cease recording depreciation for the asset and value the property at the lower of depreciated cost or fair value, less costs to dispose. Further, the related assets and liabilities of the held for sale property will be classified as assets held for sale in our consolidated balance sheets. Any gains on sales of properties are recognized at the time of sale or deferred and recognized in net income (loss) in subsequent periods as any relevant conditions requiring deferral are satisfied. 63 Investments in Affiliates The consolidated financial statements include entities in which we have a controlling financial interest, including VIEs where we are the primary beneficiary. The determination of a controlling financial interest is based upon the terms of the governing agreements of the respective entities, including the evaluation of rights held by other interests. If the entity is considered to be a VIE, we determine whether we are the primary beneficiary, and then consolidate those VIEs for which we have determined we are the primary beneficiary. If the entity in which we hold an interest does not meet the definition of a VIE, we evaluate whether we have a controlling financial interest through our voting interests in the entity. We consolidate entities when we own more than 50 percent of the voting shares of a company or otherwise have a controlling financial interest. References in these financial statements to net income (loss) attributable to stockholders do not include non-controlling interests, which represent the outside ownership interests of our consolidated, non-wholly owned entities and are reported separately. We hold investments in affiliates that primarily own or lease hotels. Investments in affiliates over which we exercise significant influence, but lack a controlling financial interest, are accounted for using the equity method. 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 (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. Distributions from investments in affiliates are recorded as an investing activity in our consolidated statements of cash flows when such distributions are a return of investment. We assess the recoverability of our equity method investments if there are indicators of potential impairment. 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 (losses) earnings from investments in affiliates in our consolidated statements of comprehensive (loss) income. Non-controlling Interests We present the portion of any equity that we do not own in entities that we have a controlling financial interest (and thus consolidate) as non-controlling interests and classify those interests as a component of total equity, separate from total stockholders’ equity, on our consolidated balance sheets. 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 (loss) income in our consolidated statements of comprehensive (loss) income. 64 Goodwill 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 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. (“Blackstone Merger”) . Our Parent allocated goodwill to us based on the relative fair value of our properties compared to that of Parent’s ownership segment as of the date of the Blackstone Merger. We 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. 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. 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 (loss) income. Asset Acquisitions We consider an asset acquisition to occur when substantially all the fair value of an acquisition is concentrated in a single identifiable asset or a group of similar identifiable assets. In an acquisition of assets, we are not required to expense our acquisition-related costs, and goodwill is not assigned. We will account for the properties purchased as asset acquisitions by allocating the total cash consideration, including transaction costs, to the individual assets acquired and liabilities assumed, respectively, on a relative fair value basis. Business Combinations We consider a business combination to occur when we take control of a business by acquiring its net assets or equity interests. We record the assets acquired, liabilities assumed and non-controlling interests at fair value as of the acquisition date, including any contingent consideration. We evaluate factors, including market data for similar assets, expected future cash flows discounted at risk-adjusted rates and replacement cost for the assets to determine an appropriate fair value of the assets. Acquisition-related costs, such as due diligence, legal and accounting fees, are expensed in the period incurred and are not capitalized or applied in determining the fair value of the acquired assets. 65 Cash and Cash Equivalents Cash and cash equivalents include all highly liquid investments with original maturities, when purchased, of three months or less. Restricted Cash 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. Allowance for Doubtful Accounts An allowance for doubtful accounts is provided on accounts receivable when losses are probable based on historical collection activity and current business conditions. Leases We consider an arrangement to contain a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for compensation. Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent the present value of our fixed payment obligations. Leases with a term of 12 months or less are not recorded on the balance sheet. We use our estimated incremental borrowing rate to determine the present value of our lease obligations. Our operating leases may require fixed payments, variable payments based on a percentage of revenue or income, or payments equal to the greater of a fixed or variable payment. Variable payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation is incurred. Operating lease expense is recognized on a straight-line basis over the lease term. Our l ease terms include renewal options that we are reasonably certain to exercise, and renewal options controlled by the lessor. Fair Value Measurements—Valuation Hierarchy Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date (an exit price). We use the three-level valuation hierarchy for classification of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The three-level hierarchy of inputs is summarized below: • Level 1—Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets. • Level 2—Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument. • Level 3—Valuation is based upon other unobservable inputs that are significant to the fair value measurement. The classification of assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement in its entirety at the end of each reporting period. Derivative Instruments We may use derivative instruments as part of our overall strategy to manage our exposure to market risks associated with fluctuations in interest rates. We will regularly monitor the financial stability and credit standing of the counterparties to our derivative instruments. Under the terms of certain loan agreements, we may be required to maintain derivative financial instruments to manage interest rates. We do not enter into derivative financial instruments for trading or speculative purposes. We record all derivatives at fair value. On the date the derivative contract is entered, we designate the derivative as one of the following: a hedge of a forecasted transaction or the variability of cash flows to be paid (“cash flow hedge”); a hedge of the fair value of a recognized asset or liability (“fair value hedge”); 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 (loss) 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 66 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. Cash flows from designated derivative financial instruments are classified within the same category as the item being hedged in the consolidated statements of cash flows. Cash flows from undesignated derivative financial instruments are included as an investing activity in our consolidated statements of cash flows. If we determine that we qualify for and will designate a derivative as a hedging instrument, at the designation date we formally document all relationships between hedging activities, including the risk management objective and strategy for undertaking various hedge transactions. This process includes matching all derivatives that are designated as cash flow hedges to specific forecasted transactions and linking all derivatives designated as fair value hedges to specific assets and liabilities in our consolidated balance sheets. To the extent we have designated a derivative as a hedging instrument, each reporting period we assess the effectiveness of our designated hedges in offsetting the variability in the cash flows or fair values of the hedged assets or obligations using the Hypothetical Derivative Method. This method compares the cumulative change in fair value of each hedging instrument to the cumulative change in fair value of a hypothetical hedging instrument, which has terms that identically match the critical terms of the respective hedged transactions. Thus, the hypothetical hedging instrument is presumed to perfectly offset the hedged cash flows. Ineffectiveness results when the cumulative change in the fair value of the hedging instrument exceeds the cumulative change in the fair value of the hypothetical hedging instrument. We discontinue hedge accounting prospectively, when the derivative is not highly effective as a hedge, the underlying hedged transaction is no longer probable, or the hedging instrument expires, is sold, terminated or exercised. Revenue Recognition Our results of operations primarily consist of room rentals, food and beverage sales and other ancillary goods and services from hotel properties. 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. Ancillary hotel revenue and other revenue is generally recognized at a point in time as goods and services are delivered or rendered. We assess if we are the principal or agent for certain ancillary services provided by third parties. If we are the principal, we recognize revenue based on the gross sales price. If we are the agent, we recognize revenue net of costs paid to service providers. Payment received for a future stay or event is recognized as an advance deposit, which is included in other liabilities on our consolidated balance sheet. Advance deposits are recognized as revenue when rooms are occupied or goods or services have been delivered or rendered to our customer. 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 (loss) income. Currency Translation The United States dollar (“USD”) is our reporting currency and is the functional currency of our consolidated and unconsolidated entities operating in the U.S. The functional currency for our consolidated and unconsolidated entities operating outside of the U.S. is the currency of the primary economic environment in which the respective entity operates. Assets and liabilities measured in foreign currencies are translated into USD at the prevailing exchange rates in effect as of the financial statement date and the related gains and losses, net of applicable deferred income taxes, are reflected in accumulated other comprehensive income (loss) in our consolidated balance sheets. 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 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 We recognize the cost of services received in share-based payment transactions with employees and non-employee directors as services are received and recognize a corresponding increase in additional paid-in capital for equity classified awards. We account for any forfeitures when they occur. 67 The measurement objective for these equity awards is the estimated fair value at the grant date of the equity instruments that we will be obligated to issue when employees have rendered the requisite service and satisfied any other conditions necessary to earn the right to benefit from the instruments. The compensation expense for an award classified as an equity instrument is recognized ratably over the requisite service period. The requisite service period is the period during which an employee is required to provide service in exchange for an award. Income Taxes We are a REIT for U.S. federal income tax purposes. We have been organized and operated, and we expect to continue to be organized and operate, in a manner to qualify as a REIT. To qualify as a REIT, we must satisfy requirements related to, among other things, the real estate qualification of sources of our income, the real estate composition and values of our assets, the amounts we distribute to our stockholders annually and the diversity of ownership of our stock. To the extent we continue to remain qualified as a REIT, we generally will not be subject to U.S. federal income tax on taxable income generated by our REIT activities that we distribute annually to our stockholders. Accordingly, no provision for U.S. federal income taxes has been included in our accompanying 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 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). We account for income taxes using the asset and liability method. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year, to recognize the deferred tax assets and liabilities that relate to tax consequences in future years, which result from differences between the respective tax basis of assets and liabilities and their financial reporting amounts, and tax loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the respective temporary differences or operating loss or tax credit carry forwards are expected to be recovered or settled. The realization of deferred tax assets and tax loss and tax credit carry forwards is contingent upon the generation of future taxable income and other restrictions that may exist under the tax laws of the jurisdiction in which a deferred tax asset exists. Valuation allowances are provided to reduce such deferred tax assets to amounts more likely than not to be ultimately realized. We use a prescribed recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken in a tax return. For all income tax positions, we first determine whether it is “more-likely-than-not” that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. If it is determined that a position meets the more-likely-than-not recognition threshold, the benefit recognized in the financial statements is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. Recently Issued Accounting Pronouncements Adopted Accounting Standards In June 2016, the FASB issued ASU No. 2016-13, “ Financial Instruments-Credit Losses (Topic 326): 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 clarified that operating lease receivables accounted for under ASC 842 are not in the scope of ASU No. 2016-13. 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. 68 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. Note 3: Acquisitions, Dispositions and Assets Held for Sale Acquisitions Merger with Chesapeake As a result of the Merger, we acquired a 100 % ownership interest in the following 18 hotels: Hotel Location Rooms Hilton Denver City Center Denver, CO 613 W Chicago – Lakeshore Chicago, IL 520 Hyatt Regency Boston Boston, MA 502 Hyatt Regency Mission Bay Spa and Marina San Diego, CA 438 Boston Marriott Newton Newton, MA 430 Le Meridien New Orleans (1) New Orleans, LA 410 W Chicago – City Center Chicago, IL 403 Royal Palm South Beach Miami, a Tribute Portfolio Resort Miami Beach, FL 393 Le Meridien San Francisco San Francisco, CA 360 JW Marriott San Francisco Union Square San Francisco, CA 344 Hyatt Centric Fisherman’s Wharf San Francisco, CA 316 Hotel Indigo San Diego Gaslamp Quarter San Diego, CA 210 Courtyard Washington Capitol Hill/Navy Yard Washington, DC 204 Homewood Suites by Hilton Seattle Convention Center Pike Street Seattle, WA 195 Hilton Checkers Los Angeles Los Angeles, CA 193 Ace Hotel Downtown Los Angeles (1) Los Angeles, CA 182 Hotel Adagio, Autograph Collection San Francisco, CA 171 W New Orleans – French Quarter New Orleans, LA 97 5,981 (1) Hotels were subsequently sold in December 2019. The total consideration for the Merger was approximately $ 2 billion, which included the issuance of approximately 37.8 million shares of common stock valued at $ 25.88 per share to Chesapeake common shareholders based on the closing price of our common stock on September 17, 2019. We accounted for the Merger using the acquisition method of accounting. 69 We allocated the purchase price, consisting of common stock issued of $ 978 million and cash of $ 1,013 million, as follows: (in millions) Investment in hotel properties, net $ 2,220 Intangibles, net 45 Cash and cash equivalents 62 Restricted cash 38 Accounts receivable, net 26 Prepaid expenses 9 Other assets 2 Operating lease right-of-use asset 65 Debt ( 311 ) Accounts payable and accrued expenses ( 47 ) Due to hotel managers ( 15 ) Other liabilities ( 15 ) Operating lease liability ( 88 ) Total consideration $ 1,991 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 – 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 – 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 – 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. The above and below market lease liabilities are included as adjustments to the right-of-use asset in the accompanying consolidated balance sheet. 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 – 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 – 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. 70 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. The unaudited condensed pro-forma financial information is not necessarily indicative of what our actual results of operations would have been assuming the Merger had taken place on January 1, 2018, nor is it indicative of the results of operations for future periods. The unaudited condensed pro-forma financial information is as follows: For the year ended December 31, 2019 2018 (unaudited) (in millions) Total revenues $ 3,250 $ 3,297 Operating income 504 608 Net income 359 531 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. Dispositions 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. 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 (loss) income. Hotel Location Month Sold Pointe Hilton Squaw Peak Resort Phoenix, Arizona February 2019 Hilton Nuremberg Nuremberg, Germany March 2019 Hilton Atlanta Airport Atlanta, Georgia June 2019 Hilton New Orleans Airport (1) New Orleans, Louisiana June 2019 Embassy Suites Parsippany (1) Parsippany, New Jersey June 2019 Ace Hotel Downtown Los Angeles Los Angeles, California December 2019 Le Meridien New Orleans New Orleans, Louisiana December 2019 (1) Hotels were sold as a portfolio in the same transaction. 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 (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 (loss) income. 71 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 (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 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: (in millions) Assets: Property and equipment, net $ 62 Cash and cash equivalents 7 Accounts receivable 2 Total Assets Held for Sale $ 71 Liabilities: Liabilities related to assets held for sale (1) $ 6 Total Liabilities Held for Sale $ 6 (1) Amounts included in other liabilities in our consolidated balance sheet as of December 31, 2019. Note 4: Property and Equipment Property and equipment were: December 31, 2020 2019 (1) (in millions) Land $ 3,429 $ 3,512 Buildings and leasehold improvements 6,951 6,978 Furniture and equipment 1,042 1,059 Construction-in-progress 52 134 11,474 11,683 Accumulated depreciation and amortization ( 2,281 ) ( 2,089 ) $ 9,193 $ 9,594 (1) Excludes $ 62 million of property and equipment, net classified as held for sale as of December 31, 2019. 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 In October 2016, we completed the sale of 600 rooms at the Hilton Waikoloa Village to HGV in connection with timeshare projects. The net book value of these assets was approximately $ 177 million. 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. 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 72 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; accordingly, we derecognized $ 38 million of property and equipment, net, and the related $ 39 million liability due to HGV. 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. 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 In September 2017, Hurricanes Irma and Maria caused damage and disruption at certain of our hotels in Florida and the Caribe Hilton in Puerto Rico. The Caribe Hilton remained closed throughout 2018 and reopened on May 15, 2019. 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 , 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 (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. These amounts were offset by the recognition of an insurance receivable of $ 57 million. Additionally, we received $ 119 million of insurance proceeds, of which $ 25 million related to business interruption and $ 6 million related to expense reimbursements. Note 5: Consolidated Variable Interest Entities ("VIEs") and Investments in Affiliates Consolidated VIEs We consolidate three VIEs that own hotels in the U.S. We are the primary beneficiary of these VIEs as we have the power to direct the activities that most significantly affect their economic performance. Additionally, we have the obligation to absorb their losses and the right to receive benefits that could be significant to them. The assets of our VIEs are only available to settle the obligations of these entities. Our consolidated balance sheets include the following assets and liabilities of these entities: December 31, 2020 2019 (in millions) Property and equipment, net $ 216 $ 221 Cash and cash equivalents 8 13 Restricted cash 2 1 Accounts receivable, net 1 5 Prepaid expenses 1 2 Other assets 1 — Debt 207 207 Accounts payable and accrued expenses 5 8 Due to hotel manager — 2 Other liabilities 1 2 73 Unconsolidated Entities Investments in affiliates were: December 31, Ownership % 2020 2019 (in millions) Hilton San Diego Bayfront 25 % 11 18 All others (6 hotels) ( 1) 20% - 50% 3 17 $ 14 $ 35 (1) In November 2019, we disposed of our ownership interest in the Conrad Dublin. Refer to Note 3: “ 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 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. Note 6: Goodwill and Intangibles 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. 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 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. Refer to Note 8: “Fair Value Measurements” for additional information. Our goodwill balance and related activity was: Goodwill Accumulated Impairment Losses Balance (in millions) Balance as of December 31, 2018 $ 2,709 $ ( 2,102 ) $ 607 Impairment loss — — — Balance as of December 31, 2019 2,709 ( 2,102 ) 607 Impairment loss — ( 607 ) ( 607 ) Balance as of December 31, 2020 $ 2,709 $ ( 2,709 ) $ — Intangible assets were: December 31, 2020 2019 (in millions) Air rights contract ( 1) 45 45 Other 8 8 Accumulated amortization ( 8 ) ( 7 ) $ 45 $ 46 (1) 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. 74 As of December 31, 2020, we estimated our future amortization expense for our intangible assets to be: Year (in millions) 2021 $ 1 2022 1 2023 1 2024 1 2025 1 Thereafter 40 $ 45 Note 7: Debt Debt balances and associated interest rates as of December 31, 2020 were: Principal balance as of Interest Rate at December 31, 2020 Maturity Date December 31, 2020 December 31, 2019 (in millions) SF CMBS Loan 4.11 % November 2023 $ 725 $ 725 HHV CMBS Loan 4.20 % November 2026 1,275 1,275 Mortgage loans Average rate of 4.17% 2021 to 2026 (1)(2) 509 515 2016 Term Loan ( 3) N/A December 2021 — 700 2019 Term Facility ( 4) L + 2.65% August 2024 670 670 Revolver ( 4) L + 3.00% 2021 to 2023 (5) 601 — 2025 Senior Secured Notes 7.50 % June 2025 650 — 2028 Senior Secured Notes 5.88 % October 2028 725 — Finance lease obligations 3.07 % 2021 to 2022 1 1 5,156 3,886 Add: unamortized premium 3 3 Less: unamortized deferred financing costs and discount ( 38 ) ( 18 ) $ 5,121 $ 3,871 (1) Assumes the exercise of all extensions that are exercisable solely at our option. The mortgage loan for Hilton Denver City Center matures in 2042 but is callable by the lender beginning August 2022 . (2) 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 %. (3) In September 2020, the 2016 Term Loan was fully repaid. (4) In May 2020, we amended our credit and term loan facilities which added a LIBOR floor of 25 basis points . (5) 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 In October 2016, we entered into a $ 725 million CMBS loan secured by the Hilton San Francisco Union Square and the Parc 55 Hotel San Francisco (“SF CMBS Loan”) and a $ 1.275 billion CMBS loan secured by the Hilton Hawaiian Village (“HHV CMBS Loan”). Both the SF CMBS Loan and the HHV CMBS Loan bear interest at a fixed-rate and require interest-only payments through their respective maturity dates. At any time after the permitted release date of May 1, 2019, the SF CMBS Loan and HHV CMBS Loan may be partially or fully prepaid, subject to prepayment penalties. 75 Our mortgage loans, which are associated with our three consolidated VIEs and mortgage loans acquired through the Merger, bear interest at either a fixed-rate or variable rate. Our mortgage loans associated with our VIEs require interest-only loan payments through their respective maturity dates and the mortgage loans associated with the Merger require payments of principal and interest on a monthly basis. We are required to deposit with lenders certain cash reserves for restricted uses. 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 2016 Term Loan and Revolver 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 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 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 76 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 the 2019 Term Facility with Bank of America, N.A. as administrative agent, and certain other financial institutions party thereto as lenders. The 2019 Term Facility provided for $ 950 million unsecured delayed draw term loan commitments to fund the Merger. The 2019 Term Facility included a $ 100 million two-year delayed draw term loan tranche, which was unfunded and the commitments thereunder terminated on September 18, 2019, and a $ 850 million five-year delayed draw term loan tranche, which has a scheduled maturity date of August 2024 . On September 18, 2019, the five-year tranche was fully drawn to fund the Merger of which $ 180 million was prepaid in December 2019. The 2019 Term Facility agreement includes the option to increase the size of the 2019 Term Facility and enter into additional incremental term loan credit facilities, subject to certain limitations and obtaining additional commitments, in an aggregate amount not to exceed $ 400 million for all such increases. Borrowings from the 2019 Term Facility 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. Beginning in August 2019, we accrued an unused commitment fee equal to 0.25 % per annum of the undrawn portion of the 2019 Term Facility, which was paid on September 18, 2019 when the 2019 Term Facility was fully drawn. Additionally, we incurred upfront financing fees of $ 9 million associated with the 2019 Term Facility, of which $ 3 million was expensed in connection with the terminated commitments and the $ 180 million prepayment in December 2019. The 2019 Term Facility 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 generally are not permitted to make distributions to stockholders, other than those required to qualify for and maintain REIT status and certain other limited exceptions. In connection with the Merger, we assumed an interest rate swap from Chesapeake, which is designated as a cash flow hedge, to hedge the interest rate risk on a portion of the 2019 Term Facility. 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. 77 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. Indentures 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 The contractual maturities of our debt, assuming the exercise of all extensions that are exercisable solely at our option, as of December 31, 2020 were: Year (in millions) 2021 (1) $ 147 2022 69 2023 1,331 2024 677 2025 657 Thereafter ( 2) 2,275 $ 5,156 (1) 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 . (2) Assumes the exercise of all extensions that are exercisable solely at our option. 78 Note 8: Fair Value Measurements We did not elect the fair value measurement option for our financial assets or liabilities. The fair values of our other financial instruments not included in the table below are estimated to be equal to their carrying amounts. The fair value of our debt and the hierarchy level we used to estimate fair values are shown below: December 31, 2020 December 31, 2019 Hierarchy Level Carrying Amount Fair Value Carrying Amount Fair Value (in millions) Liabilities: SF CMBS Loan 3 $ 725 $ 708 $ 725 $ 740 HHV CMBS Loan 3 1,275 1,195 1,275 1,316 2016 Term Loan 3 — — 700 698 2019 Term Facility 3 670 661 670 667 Revolver 3 601 596 — — 2025 Senior Secured Notes 1 650 705 — — 2028 Senior Secured Notes 1 725 774 — — Mortgage loans 3 509 480 516 516 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 Fair Value Impairment Loss (in millions) Property and equipment ( 1) $ 24 $ 90 Goodwill ( 2) — 607 Total $ 24 $ 697 (1) 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 . (2) 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. Note 9: Leases We lease hotel properties, land and equipment under operating and financing leases. We are subject to ground leases on 14 of our consolidated properties. Our leases expire, including options under lessor control, at various dates through 2083 , with varying renewal options, and the majority expire before 2032 . Our operating leases may require minimum rent payments, variable rent payments based on a percentage of revenue or income or rent payments equal to the greater of a minimum rent or variable rent. In addition, we may be required to pay some, or all, of the capital costs for property and equipment in the hotel during the term of the lease. 79 The maturities of our non-cancelable operating lease liabilities, due in each of the next five years and thereafter as of December 31, 2020, were: Operating Leases Year (in millions) 2021 $ 30 2022 29 2023 24 2024 24 2025 24 Thereafter 341 Total minimum rent payments 472 Less: imputed interest 228 Total operating lease liabilities $ 244 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: Year Ended Year Ended December 31, 2020 December 31, 2019 (in millions) Operating lease expense $ 30 $ 30 Variable lease expense 2 13 Operating cash flows for operating leases 28 36 Right-of-use assets obtained in exchange for lease obligations ( 1) — 278 (1) 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. Note 10: Income Taxes We are a REIT for U.S. federal income tax purposes. We have been organized and operated, and we expect to continue to be organized and operate in a manner to qualify as a REIT. To qualify as a REIT, we must satisfy requirements related to, among other things, the real estate qualification of sources of our income, the real estate composition and values of our assets, the amounts we distribute to our stockholders annually and the diversity of ownership of our stock. To the extent we continue to remain qualified as a REIT, we generally will not be subject to U.S. federal income tax on taxable income generated by our REIT activities that we distribute annually to our stockholders. Accordingly, no provision for U.S. federal income taxes has been included in our accompanying 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 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). H.R. 1, commonly referred to as The Tax Cuts and Jobs Act of 2017 (the “Act”) was enacted on December 22, 2017. The Act, which amended the Internal Revenue Code of 1986, was the most significant tax legislative development in decades. Major elements of the Act from our perspective include reducing the corporate tax rate; restricting the eligibility for tax deferred like-kind exchange treatment solely to real property; limiting the deductibility of interest expense; the one-time transition tax on foreign cash and unremitted earnings; 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 $ 8 million of income tax expense for the year ended December 31, 2018 when our analysis of the effects of the Act was completed. 80 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. federal, state and foreign income taxes payable. The domestic and foreign components of income before income taxes were: Year Ended December 31, 2020 2019 2018 (in millions) U.S. (loss) income before tax $ ( 1,449 ) $ 350 $ 498 Foreign (loss) income before tax ( 1 ) 1 2 (Loss) income before income taxes $ ( 1,450 ) $ 351 $ 500 The components of our (benefit) provision for income taxes were: Year Ended December 31, 2020 2019 2018 (in millions) Current: U.S. Federal $ 1 $ 16 $ 34 State 3 3 6 Foreign 20 11 3 Total current 24 30 43 Deferred: U.S. Federal ( 29 ) 3 ( 18 ) Foreign ( 1 ) 2 ( 2 ) Total deferred ( 30 ) 5 ( 20 ) Total (benefit) provision for income taxes $ ( 6 ) $ 35 $ 23 81 Reconciliations of our tax provision at the U.S. statutory rate to the (benefit) provision for income taxes were: Year Ended December 31, 2020 2019 2018 (in millions) Statutory U.S. federal income tax (benefit) provision $ ( 306 ) $ 74 $ 105 State income taxes, net of U.S. federal tax benefit 1 2 3 Foreign income tax expense, net 19 13 2 Change in deferred tax asset valuation allowance 71 2 — Tax rate change ( 7 ) — ( 2 ) REIT income not subject to tax 221 ( 69 ) ( 92 ) Derecognition and remeasurement of deferred taxes ( 35 ) 13 7 Recognized built-in gain tax 29 — — Other 1 — — (Benefit) provision for income taxes $ ( 6 ) $ 35 $ 23 Deferred income taxes represent the tax effect of the differences between the book and tax bases of assets and liabilities plus carryforward items. The composition of net deferred tax balances were as follows: December 31, 2020 2019 (in millions) Deferred income tax assets ( 1) $ 1 $ 8 Deferred income tax liabilities ( 10 ) ( 50 ) Net deferred tax liability $ ( 9 ) $ ( 42 ) (1) Included within other assets in our consolidated balance sheets, net of valuation allowance. The tax effects of the temporary differences and carryforwards that give rise to our net deferred tax liability were: December 31, 2020 2019 (in millions) Deferred tax assets: Net operating loss carryforwards $ 74 $ 9 Deferred income 5 4 Accrued compensation 1 2 Other 6 6 Total gross deferred tax assets 86 21 Less: valuation allowance ( 77 ) ( 6 ) Deferred tax assets 9 15 Deferred tax liabilities: Property and equipment ( 4 ) ( 48 ) Investments ( 10 ) ( 8 ) Accrued compensation ( 4 ) ( 1 ) Deferred tax liabilities ( 18 ) ( 57 ) Net deferred tax liability $ ( 9 ) $ ( 42 ) As of December 31, 2020, we had U.S. federal and state net operating loss carryforwards of $ 1 billion, which resulted in deferred tax assets of $ 74 million. Our U.S. 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. For periods ended prior to January 4, 2017, Hilton filed income tax returns for us, with U.S. federal, state and foreign jurisdictions. Hilton is under regular and recurring audit by the Internal Revenue Service on open tax positions. 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 82 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. and foreign tax authorities. Hilton is no longer subject to U.S. federal income tax examination for years through 200 4 . As of December 31, 2020 , Hilton remains subject to U.S. federal examinations from 200 5 through 201 7 , state examinations from 200 5 through 201 7 and foreign examinations of their income tax returns for the years 199 6 through 201 7 . We will be subject to U.S. federal, state and foreign examinations for periods ending after January 4, 2017. For U.S. federal income tax purposes, the cash distributions to stockholders are characterized as follows: Year Ended December 31, 2020 2019 Common distributions (per share): Ordinary dividends $ 0.244571 $ 1.605405 Capital gain distributions ( 1) 0.205429 0.294595 (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. Note 11: Share-Based Compensation We issue equity-based awards to our employees pursuant to the 2017 Omnibus Incentive Plan (“2017 Employee Plan”) and our non-employee directors pursuant to the 2017 Stock Plan for Non-Employee Directors (“2017 Director Plan”). The 2017 Employee Plan provides that a maximum of 8,000,000 shares of our common stock may be issued, and as of December 31, 2020, 3,588,672 shares of common stock remain available for future issuance. The 2017 Director Plan provides that a maximum of 450,000 shares of our common stock may be issued, and as of December 31, 2020, 72,982 shares of common stock remain available for future issuance. 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 (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 Restricted Stock Awards (“RSAs”) generally vest in annual installments between one and three years from each grant date. The following table provides a summary of RSAs for the years ended December 31, 2020, 2019 and 2018: Number of Shares Weighted-Average Grant Date Fair Value Unvested at January 1, 2018 461,639 26.47 Granted 367,463 27.34 Vested ( 214,208 ) 26.67 Forfeited ( 29,788 ) 27.48 Unvested at December 31, 2018 585,106 26.89 Granted 302,506 31.24 Vested ( 312,462 ) 26.99 Forfeited ( 17,905 ) 29.58 Unvested at December 31, 2019 557,245 29.10 Granted 672,689 18.18 Vested ( 333,685 ) 25.67 Forfeited ( 61,991 ) 28.97 Unvested at December 31, 2020 834,258 $ 21.68 83 Performance Stock Units Performance Stock Units (“PSUs”) generally vest at the end of a three-year performance period and are subject to the achievement of a market condition based on a measure of our total shareholder return relative to the total shareholder return of the companies that comprise the FTSE Nareit Lodging Resorts Index (that have a market capitalization in excess of $ 1 billion as of the first day of the applicable performance period). The number of PSUs that may become vested ranges from zero to 200 % of the number of PSUs granted to an employee, based on the level of achievement of the foregoing performance measure. Additionally, in 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: Number of Shares Weighted-Average Grant Date Fair Value Unvested at January 1, 2018 371,557 31.96 Granted 179,774 29.47 Forfeited ( 13,395 ) 30.48 Unvested at December 31, 2018 537,936 31.16 Granted 314,858 34.28 Vested ( 277,325 ) 31.25 Forfeited ( 672 ) 42.05 Unvested at December 31, 2019 574,797 32.82 Granted 1,641,117 14.39 Vested ( 973,891 ) 20.00 Forfeited ( 163,468 ) 17.34 Unvested at December 31, 2020 1,078,555 $ 18.70 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, 2020 2019 2018 Expected volatility ( 1) 22.0% - 65.0% 19.5% - 21.5% 20.0% - 24.0% Dividend yield ( 2) — — — Risk-free rate 0.3% - 1.5% 1.8% - 2.4% 2.4% - 2.7% Expected term 1 - 4 years 3 years 3 years (1) For the years ended December 31, 2020, 2019 and 2018, the weighted average expected volatility was 46.2 %, 20.5 % and 24.0 %, respectively. (2) Dividends are assumed to be reinvested in shares of our common stock and dividends will not be paid unless shares vest. 84 Note 12: Earnings Per Share The following table presents the calculation of basic and diluted earnings per share (“EPS”): Year Ended December 31, 2020 2019 2018 (in millions, except per share amounts) Numerator: Net (loss) income attributable to stockholders $ ( 1,440 ) $ 306 $ 472 Earnings attributable to participating securities — ( 1 ) ( 2 ) Net (loss) income attributable to stockholders, net of earnings allocated to participating securities $ ( 1,440 ) $ 305 $ 470 Denominator: Weighted average shares outstanding – basic 236 212 203 Unvested restricted shares — 1 1 Weighted average shares outstanding – diluted 236 213 204 (Loss) Earnings per share - Basic ( 1) $ ( 6.11 ) $ 1.44 $ 2.32 (Loss) Earnings per share - Diluted ( 1) $ ( 6.11 ) $ 1.44 $ 2.31 (1) Per share amounts are calculated based on unrounded numbers. Certain of our outstanding equity awards were excluded from the above calculation of EPS for the years ended December 31, 2020, 2019 and 2018 because their effect would have been anti-dilutive. Note 13: Hotel Management Operating and License Agreements Management and Franchise Fees We have management agreements, whereby we pay a base fee equal to a percentage of total revenues, as defined, as well as an incentive fee if specified financial performance targets are achieved. Our managers generally have sole responsibility for all activities necessary for the operation of the hotels, including establishing room rates, processing reservations and promoting and publicizing the hotels. Our managers also generally provide all employees for the hotels, prepare reports, budgets and projections, and provide other administrative and accounting support services to the hotels. We have consultative and limited approval rights with respect to certain actions of our managers, including entering into long-term or high value contracts, engaging in certain actions relating to legal proceedings, approving the operating budget, making certain capital expenditures and the hiring of certain management personnel. Our management agreements have initial terms ranging from 5 to 30 years and allow for one or more renewal periods. Assuming all renewal periods are exercised by our hotel managers, the total term of our management agreements range from 30 to 70 years . We also have franchise agreements for 12 hotels. The franchise agreements have an initial term of 7 to 20 years and cannot be extended without the franchisor’s consent. Marketing Fees Additionally, the management and franchise agreements generally require a marketing fee equal to a percentage of rooms revenues. 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 We are responsible for reimbursing our managers for certain employee related costs outside of payroll. These costs include contributions to a defined contribution 401(k) Retirement Savings Plan administered by our managers, union-sponsored pension plans and other post-retirement plans. 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 $ 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. 85 Note 14: Geographic and Business Segment Information As of December 31, 2020, we have two operating segments, our consolidated hotels and unconsolidated hotels. Our unconsolidated hotels operating segment does not meet the definition of a reportable segment, thus our consolidated hotels is our only reportable segment. We evaluate our consolidated hotels primarily based on hotel adjusted earnings (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; • Costs associated with hotel acquisitions or dispositions expensed during the period; • Severance expense; • Share-based compensation expense; • Impairment losses and casualty gains or losses; and • Other items that we believe are not representative of our current or future operating performance. The following table presents revenues for our consolidated hotels reconciled to our consolidated amounts and net (loss) income to Hotel Adjusted EBITDA: Year Ended December 31, 2020 2019 2018 (in millions) Revenues: Total consolidated hotel revenue $ 823 $ 2,767 $ 2,665 Other revenues 29 77 72 Total revenues $ 852 $ 2,844 $ 2,737 Net (loss) income $ ( 1,444 ) $ 316 $ 477 Other revenues ( 29 ) ( 77 ) ( 72 ) Impairment loss and casualty (gain) loss, net 696 ( 18 ) ( 1 ) Depreciation and amortization expense 298 264 277 Corporate general and administrative expense 61 61 64 Acquisition costs 10 70 — Other operating expenses 36 78 73 Gain on sales of assets, net ( 62 ) ( 19 ) ( 96 ) Interest income ( 2 ) ( 6 ) ( 6 ) Interest expense 213 140 127 Equity in losses (earnings) from investments in affiliates 22 ( 14 ) ( 18 ) Income tax (benefit) expense ( 6 ) 35 23 Other loss (gain), net 15 ( 45 ) ( 99 ) Severance expense 33 2 2 Other items 12 15 10 Hotel Adjusted EBITDA $ ( 147 ) $ 802 $ 761 The following table presents total assets for our consolidated hotels, reconciled to total assets: December 31, 2020 2019 (in millions) Consolidated hotels $ 10,568 $ 11,236 All other 19 54 Total assets $ 10,587 $ 11,290 86 The following table presents total revenues and property and equipment, net for each of the geographical areas in which we operate: As of and for the Year Ended December 31, 2020 2019 2018 Revenues Property and Equipment, net Revenues Property and Equipment, net ( 1) Revenues Property and Equipment, net (in millions) United States ( 2) $ 849 $ 9,193 $ 2,804 $ 9,594 $ 2,676 $ 7,906 All other 3 — 40 — 61 69 $ 852 $ 9,193 $ 2,844 $ 9,594 $ 2,737 $ 7,975 (1) Excludes $ 62 million of property and equipment, net classified as held for sale as of December 31, 2019. (2) 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. Note 15: Commitments and Contingencies As of December 31, 2020, we had outstanding commitments under third-party contracts of approximately $ 10 million for capital expenditures at certain hotels. Our contracts contain clauses that allow us to cancel all or some portion of the work. If cancellation of a contract occurred, our commitment would be any costs incurred up to the cancellation date, in addition to any costs associated with the discharge of the contract. We are involved in litigation arising from the normal course of business, some of which includes claims for substantial sums, and may make certain indemnifications or guarantees to select buyers of our hotels as part of a sale process. We are also involved in claims and litigation that is not in the ordinary course of business in connection with the spin-off from Hilton. The spin-off agreements 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. This amount could change as more information becomes available about the progress of Hilton’s defense against the ATO’s claim. Note 16: Supplemental Disclosures of Cash Flow Information Interest paid during the years ended December 31, 2020, 2019 and 2018, was $ 187 million, $ 135 million and $ 123 million, respectively. We paid $ 23 million, $ 15 million and $ 63 million in income taxes in 2020, 2019 and 2018, respectively. Capital expenditures included within accounts payable and accrued expenses in our consolidated balance sheets were $ 6 million, $ 26 million, and $ 15 million during the years ended December 31, 2020, 2019 and 2018, respectively. 87 The following non-cash investing and financing activities were excluded from the consolidated statements of cash flows: During the year ended December 31, 2019: • We issued $ 978 million of common stock and assumed $ 310 million of mortgage loans in connection with the Merger. • We transferred rooms at the Hilton Waikoloa Village to HGV and accordingly derecognized $ 123 million of property and equipment, net and $ 135 million of the related liability due to HGV. • We declared $ 136 million of dividends that were unpaid and accrued as of December 31, 2019. During the year ended December 31, 2018: • We transferred a restaurant at the Hilton Waikoloa Village to HGV and accordingly derecognized $ 3 million of property and equipment, net and $ 3 million of the related liability due to HGV. • We declared $ 206 million of dividends that were unpaid and accrued as of December 31, 2018. 88 Park Hotels & Resorts Inc. Schedule III Real Estate and Accumulated Depreciation (Dollars in millions) December 31, 2020 Initial Cost Gross Amounts at Which Carried at Close of Period Hotel Property Encumbrances Land Building & Improvements Furniture, Fixtures & Equipment Costs Capitalized Subsequent to Acquisition Land Building & Improvements Furniture, Fixtures & Equipment Total Accumulated Depreciation Date of Construction Date Acquired ( 1) Life Upon Which Depreciation is Computed Caribe Hilton $ — $ 38 $ 56 $ 7 $ 86 $ 41 $ 111 $ 35 $ 187 $ ( 34 ) 1949 10/24/2007 3 - 40 years DoubleTree Hotel Durango — — — 2 6 — 3 5 8 ( 6 ) 1985 10/24/2007 3 - 40 years DoubleTree Hotel Ontario Airport 30 14 58 3 19 13 63 18 94 ( 31 ) 1974 10/24/2007 3 - 40 years DoubleTree Hotel San Diego—Mission Valley — — — 2 16 — 9 9 18 ( 12 ) 1989 10/24/2007 3 - 40 years DoubleTree Hotel San Jose — 15 67 5 25 15 81 16 112 ( 39 ) 1980 10/24/2007 3 - 40 years DoubleTree Hotel Seattle Airport — — — 11 27 — 11 27 38 ( 31 ) 1969 10/24/2007 3 - 40 years DoubleTree Hotel Sonoma Wine Country — — — 4 11 — 6 9 15 ( 11 ) 1977 10/24/2007 3 - 40 years Embassy Suites Austin Downtown South Congress — — 45 2 18 — 58 7 65 ( 31 ) 1983 10/24/2007 3 - 40 years Embassy Suites Phoenix—Airport — — 15 1 ( 16 ) — — — — — 1986 10/24/2007 3 - 40 years Hilton Boston Logan Airport — — 108 6 30 — 130 14 144 ( 44 ) 1999 10/24/2007 3 - 40 years Hilton Chicago — 69 233 12 148 69 343 50 462 ( 146 ) 1927 10/24/2007 3 - 40 years Hilton Hawaiian Village Waikiki Beach Resort 1,275 925 807 17 346 963 1,037 95 2,095 ( 444 ) 1961 10/24/2007 3 - 40 years Hilton McLean Tysons Corner — 50 82 3 ( 14 ) 23 55 43 121 ( 64 ) 1987 10/24/2007 3 - 40 years Hilton New Orleans Riverside — 89 217 3 89 90 261 47 398 ( 122 ) 1977 10/24/2007 3 - 40 years Hilton Oakland Airport — — 13 3 2 — 10 8 18 ( 10 ) 1970 10/24/2007 3 - 40 years Hilton Salt Lake City Center — — 10 20 — 9 21 30 ( 23 ) 2002 10/24/2007 3 - 40 years Hilton San Francisco Union Square 725 (2) 113 232 16 136 113 335 49 497 ( 140 ) 1964 10/24/2007 3 - 40 years Hilton Santa Barbara Beachfront Resort 165 71 50 2 37 71 71 18 160 ( 33 ) 1986 10/24/2007 3 - 40 years Hilton Seattle Airport & Conference Center — — 70 3 16 — 80 9 89 ( 37 ) 1961 10/24/2007 3 - 40 years Hilton Short Hills 59 54 3 ( 91 ) 13 10 2 25 ( 1 ) 1988 10/24/2007 3 - 40 years Hilton Waikoloa Village — 160 340 25 ( 72 ) 106 288 59 453 ( 150 ) 1988 10/24/2007 3 - 40 years New York Hilton Midtown — 1,096 542 13 133 1,043 653 88 1,784 ( 252 ) 1963 10/24/2007 3 - 40 years DoubleTree Hotel Washington DC—Crystal City — 43 95 2 49 43 127 19 189 ( 60 ) 1982 12/14/2007 3 - 40 years Hilton Miami Airport — 64 36 3 38 64 60 17 141 ( 35 ) 1984 12/14/2007 3 - 40 years DoubleTree Hotel Spokane City Center 12 3 24 2 12 3 31 7 41 ( 13 ) 1986 1/1/2010 3 - 40 years Hilton Orlando Lake Buena Vista — — 137 10 40 — 156 31 187 ( 63 ) 1983 8/30/2010 3 - 40 years Embassy Suites Kansas City—Plaza — — 26 1 4 — 29 2 31 ( 16 ) 1973 7/25/2014 3 - 40 years Hilton Orlando Bonnet Creek — 15 377 31 31 18 403 33 454 ( 68 ) 2009 2/12/2015 3 - 40 years (1) 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. (2) Single $ 725 million CMBS loan secured by Hilton San Francisco Union Square and Parc 55 San Francisco – A Hilton Hotel. 89 Park Hotels & Resorts Inc. Schedule III Real Estate and Accumulated Depreciation—(continued) (Dollars in millions) December 31, 2020 Initial Cost Gross Amounts at Which Carried at Close of Period Hotel Property Encumbrances Land Building & Improvements Furniture, Fixtures & Equipment Costs Capitalized Subsequent to Acquisition Land Building & Improvements Furniture, Fixtures & Equipment Total Accumulated Depreciation Date of Construction Date Acquired ( 1) Life Upon Which Depreciation is Computed Parc 55 San Francisco - A Hilton Hotel $ — (2) $ 175 $ 315 $ 32 $ 16 $ 175 $ 325 $ 38 $ 538 $ ( 81 ) 1984 2/12/2015 3 - 40 years Waldorf Astoria Orlando — 34 274 29 8 34 274 37 345 ( 78 ) 2009 2/12/2015 3 - 40 years Casa Marina, A Waldorf Astoria Resort 164 174 9 6 164 177 12 353 ( 36 ) 1920 2/17/2015 3 - 40 years The Reach Key West, Curio Collection 57 67 3 18 57 79 9 145 ( 13 ) 1970 2/17/2015 3 - 40 years Juniper Hotel Cupertino, Curio Collection — 40 64 8 2 40 64 10 114 ( 18 ) 1973 6/2/2015 3 - 40 years Boston Marriott Newton — 24 74 15 — 24 74 15 113 ( 6 ) 1969 9/18/2019 3 - 40 years Courtyard Washington Capitol Hill/Navy Yard — 13 54 5 — 13 54 5 72 ( 4 ) 2006 9/18/2019 3 - 40 years Hilton Checkers Los Angeles 27 19 44 7 1 19 45 7 71 ( 3 ) 1927 9/18/2019 3 - 40 years Hilton Denver City Center 60 14 163 21 — 14 163 21 198 ( 10 ) 1982 9/18/2019 3 - 40 years Homewood Suites by Hilton Seattle Convention Center Pike Street — 5 75 7 — 5 75 7 87 ( 4 ) 1990 9/18/2019 3 - 40 years Hotel Adagio, Autograph Collection — 25 54 7 — 25 54 7 86 ( 3 ) 1929 9/18/2019 3 - 40 years Hotel Indigo San Diego Gaslamp Quarter — 7 60 8 — 7 60 8 75 ( 3 ) 2009 9/18/2019 3 - 40 years Hyatt Centric Fisherman’s Wharf — 33 122 11 1 33 123 11 167 ( 9 ) 1990 9/18/2019 3 - 40 years Hyatt Regency Boston 139 — 177 14 — — 177 14 191 ( 11 ) 1985 9/18/2019 3 - 40 years Hyatt Regency Mission Bay Spa and Marina — 5 118 15 — 5 118 15 138 ( 8 ) 1961 9/18/2019 3 - 40 years JW Marriott San Francisco Union Square — — 191 13 1 — 192 13 205 ( 9 ) 1987 9/18/2019 3 - 40 years Le Meridien San Francisco — 48 176 8 — 48 176 8 232 ( 9 ) 1989 9/18/2019 3 - 40 years Royal Palm South Beach Miami, a Tribute Portfolio Resort — 16 139 12 — 16 139 12 167 ( 8 ) 1926 9/18/2019 3 - 40 years W Chicago – City Center 76 20 76 14 — 20 76 14 110 ( 5 ) 1928 9/18/2019 3 - 40 years W Chicago – Lakeshore — 22 58 8 — 22 58 8 88 ( 5 ) 1965 9/18/2019 3 - 40 years W New Orleans – French Quarter — 3 21 1 — 3 20 2 25 ( 2 ) 1872 9/18/2019 3 - 40 years Total $ 2,509 $ 3,548 $ 6,180 $ 449 $ 1,199 $ 3,412 $ 6,953 $ 1,011 $ 11,376 $ ( 2,241 ) (1) 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. (2) Single $725 million CMBS loan secured by Hilton San Francisco Union Square and Parc 55 San Francisco – A Hilton Hotel. 90 Park Hotels & Resorts Inc. Schedule III Real Estate and Accumulated Depreciation—(continued) (Dollars in millions) December 31, 2020 Notes: (A) The change in total cost of properties for the fiscal years ended December 31, 2020, 2019 and 2018 is as follows: Year Ended December 31, 2020 2019 2018 (in millions) Balance at beginning of period $ 11,566 $ 9,921 $ 10,249 Additions during period: Acquisitions — 2,220 — Capital expenditures 66 248 192 Deductions during period: Transfers to assets held for sale — ( 86 ) — Dispositions, including casualty losses and impairment loss on planned dispositions ( 250 ) ( 734 ) ( 512 ) Foreign exchange effect ( 6 ) ( 3 ) ( 8 ) Balance at end of period $ 11,376 $ 11,566 $ 9,921 (B) The change in accumulated depreciation for the fiscal years ended December 31, 2020, 2019 and 2018 is as follows: Year Ended December 31, 2020 2019 2018 (in millions) Balance at beginning of period $ 2,038 $ 2,011 $ 2,004 Additions during period: Depreciation expense 294 256 268 Deductions during period: Transfers to assets held for sale — ( 24 ) — Dispositions, including casualty losses ( 89 ) ( 206 ) ( 262 ) Foreign exchange effect ( 2 ) 1 1 Balance at end of period $ 2,241 $ 2,038 $ 2,011 (C) The aggregate cost of real estate for U.S. federal income tax purposes is approximately $ 6.651 billion as of December 31, 2020. 91 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.