What changed in this filing

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Item 1. Financial Statements

2021-05-07 compared with 2020-11-06 · 114 added, 339 removed, 274 unchanged (62% of the section changed)

3 unchanged sentences

(in millions, except share and per share data)

September 30, 2020

March 31, 2021

December 31, 2020

Property and equipment, net

Assets held for sale, net

Investments in affiliates

15 unchanged sentences

Stockholders' Equity

Common stock, par value $ 0.01 per share, 6,000,000,000 shares authorized,

235,914,952 shares issued and 235,613,445 shares outstanding as of

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

Common stock, par value $ 0.01 per share, 6,000,000,000 shares

authorized, 236,832,708 shares issued and 236,435,153 shares outstanding

as of March 31, 2021 and 236,217,344 shares issued and 235,915,749

shares outstanding as of December 31, 2020

7 unchanged sentences

PARK HOTELS & RESORTS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(unaudited, in millions, except per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Food and beverage

6 unchanged sentences

Management fees

Impairment and casualty loss, net

Impairment loss and casualty gain, net

Depreciation and amortization

Corporate general and administrative

Acquisition costs

Total expenses

(Loss) gain on sales of assets, net

Operating (loss) income

Gain on sales of assets, net

Operating loss

Interest income

Interest expense

Equity in (losses) earnings from investments in affiliates

Equity in losses from investments in affiliates

Other loss, net

(Loss) income before income taxes

Loss before income taxes

Income tax expense

Net (loss) income

Net loss (income) attributable to noncontrolling interests

Net (loss) income attributable to stockholders

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

Net loss attributable to noncontrolling interests

Net loss attributable to stockholders

Other comprehensive loss, net of tax expense:

Currency translation adjustment, net of tax expense of $ 0

1 unchanged sentence

Total other comprehensive income (loss)

Comprehensive (loss) income

Comprehensive (income) loss attributable to noncontrolling

Comprehensive (loss) income attributable to stockholders

(Loss) Earnings per share:

(Loss) Earnings per share - Basic

(Loss) Earnings per share - Diluted

Comprehensive loss

Comprehensive loss attributable to noncontrolling

Comprehensive loss attributable to stockholders

Loss per share:

Loss per share - Basic

Loss per share - Diluted

Weighted average shares outstanding - Basic

4 unchanged sentences

(unaudited, in millions)

Nine Months Ended

September 30,

Three Months Ended

Operating Activities:

Net (loss) income

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

Adjustments to reconcile net loss to net cash used in operating

Depreciation and amortization

Gain on sales of assets, net

Impairment and casualty loss, net

Equity in losses (earnings) from investments in affiliates

Impairment loss and casualty gain, net

Equity in losses from investments in affiliates

Other loss, net

2 unchanged sentences

Distributions from unconsolidated affiliates

Deferred income taxes

Changes in operating assets and liabilities

Net cash (used in) provided by operating activities

Net cash used in operating activities

Investing Activities:

Acquisitions, net of cash and restricted cash acquired

Capital expenditures for property and equipment

2 unchanged sentences

Insurance proceeds for property damage claims

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities

Financing Activities:

Proceeds from issuance of Senior Secured Notes

Borrowings from credit facilities

Repayments of credit facilities

Repayment of mortgage debt

Debt issuance costs

Repayments of mortgage debt

Dividends paid

Distributions to noncontrolling interests, net

Distributions to noncontrolling interests

Tax withholdings on share-based compensation

Repurchase of common stock

Net cash provided by financing activities

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

Net cash (used in) provided by financing activities

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

Cash and cash equivalents and restricted cash, beginning of period

2 unchanged sentences

Non-cash financing activities:

Issuance of common shares in connection with the acquisition of Chesapeake

Lodging Trust

Assumption of mortgage loans in connection with acquisitions

Dividends declared but unpaid

4 unchanged sentences

Comprehensive

(Loss) Income

Balance as of December 31, 2020

Share-based compensation, net

Other comprehensive loss

Dividends and dividend equivalents (1)

Distributions to noncontrolling

Repurchase of common stock

Balance as of March 31, 2020

Share-based compensation, net

Other comprehensive loss

Balance as of June 30, 2020

Share-based compensation, net

Other comprehensive income

Balance as of September 30, 2020

Balance as of March 31, 2021

Comprehensive

(Loss) Income

Balance as of December 31, 2019

Share-based compensation, net

Dividends and dividend equivalents (1)

Distributions to noncontrolling

Cumulative effect of change in

accounting principle

Balance as of March 31, 2019

Share-based compensation, net

Other comprehensive income

Dividends and dividend equivalents (1)

Balance as of June 30, 2019

Issuance of common stock

Share-based compensation, net

Other comprehensive loss

1 unchanged sentence

Distributions to noncontrolling

Balance as of September 30, 2019

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

Repurchase of common stock

Balance as of March 31, 2020

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

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

11 unchanged sentences

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

We are treated as a real estate investment trust (“REIT”) for United States (“U.S.”) federal income tax purposes, and we believe we have been organized and operated, and expect to continue to be organized and operate in a manner to qualify as a REIT.

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

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

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

1 unchanged sentence

Recent Events

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

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.

We expect that COVID-19 will continue to negatively affect our operating results for the remainder of 2020 and the early part 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 $ 1 billion revolving credit facility (“Revolver”).

We have since commenced a phased reopening of 26 of our hotels as restrictions are removed and demand returns.

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

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.

However, the distribution of COVID-19 vaccines that began in December 2020 and the reports of their effectiveness have resulted in an improvement in traveler and general consumer sentiment.

We and our hotel managers have taken various actions to mitigate the effects of COVID-19, including temporarily suspending operations at certain of our hotels in March 2020, limiting capacity at our open hotels, deferring approximately $ 150 million of capital expenditures planned for 2020, reducing budgeted capital expenditures for maintenance projects to approximately $ 40 million for 2021, 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”) and completing two corporate bond offerings totaling $ 1.4 billion in 2020.

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

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

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.

14 unchanged sentences

Reclassifications

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

Certain line items on the condensed consolidated statements of comprehensive loss and the condensed consolidated statements of cash flows for the three months ended March 31, 2020 have been reclassified to conform to the current period presentation.

Summary of Significant Accounting Policies

1 unchanged sentence

There have been no significant changes to our significant accounting policies since December 31, 2020.

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.

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

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

In January 2017, the FASB issued ASU No.

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

Simplifying the Test for Goodwill Impairment .

This ASU eliminates Step 2 from goodwill impairment testing.

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

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

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

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

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

Acquisitions and Dispositions

Merger with Chesapeake

As a result of the Merger, we acquired a 100 % ownership interest in the following 18 hotels:

Hilton Denver City Center

W Chicago – Lakeshore

Hyatt Regency Boston

Hyatt Regency Mission Bay Spa and Marina

San Diego, CA

Boston Marriott Newton

Le Meridien New Orleans (1)

New Orleans, LA

W Chicago – City Center

Royal Palm South Beach Miami, a Tribute Portfolio Resort

Miami Beach, FL

Le Meridien San Francisco

San Francisco, CA

JW Marriott San Francisco Union Square

San Francisco, CA

Hyatt Centric Fisherman’s Wharf

San Francisco, CA

Hotel Indigo San Diego Gaslamp Quarter

San Diego, CA

Courtyard Washington Capitol Hill/Navy Yard

Washington, DC

Homewood Suites by Hilton Seattle Convention Center Pike Street

Hilton Checkers Los Angeles

Los Angeles, CA

Ace Hotel Downtown Los Angeles (1)

Los Angeles, CA

Hotel Adagio, Autograph Collection

San Francisco, CA

W New Orleans – French Quarter

New Orleans, LA

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.

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

(in millions)

Investment in hotel properties, net

Intangibles, net

Cash and cash equivalents

Restricted cash

Accounts receivable, net

Prepaid expenses

Operating lease right-of-use asset

Accounts payable and accrued expenses

Due to hotel managers

Other liabilities

Operating lease liability

Total consideration

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 condensed 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.

For the three months ended September 30, 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 period.

For the three and nine months ended September 30, 2019, we incurred $ 59 million and $ 65 million, respectively, 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 condensed 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, 2019.

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, 2019, nor is it indicative of the results of operations for future periods.

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

Three Months Ended September 30, 2019

Nine Months Ended September 30, 2019

(in millions)

Total revenues

Operating income

From the date of the Merger through September 30, 2019, we recognized $ 23 million of total revenues, $ 5 million of operating income and $ 4 million of net income related to the hotels acquired in connection with the Merger.

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

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

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 nine months ended September 30, 2019, we sold our ownership interests in five consolidated hotels listed in the table below for total gross proceeds of $ 236 million and recognized a gain, net of selling costs, of $ 20 million on these hotels which is included in gain on sales of assets, net in our condensed consolidated statements of comprehensive (loss) income.

Pointe Hilton Squaw Peak Resort

Phoenix, Arizona

February 2019

Hilton Nuremberg

Nuremberg, Germany

Hilton Atlanta Airport

Atlanta, Georgia

Hilton New Orleans Airport (1)

New Orleans, Louisiana

Embassy Suites Parsippany (1)

Parsippany, New Jersey

Hotels were sold as a portfolio in the same transaction.

Property and Equipment

Property and equipment were:

September 30, 2020

March 31, 2021

December 31, 2020

4 unchanged sentences

Accumulated depreciation and amortization

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

Depreciation of property and equipment was $ 75 million and $ 60 million during the three months ended September 30, 2020 and 2019, respectively, and $ 224 million and $ 182 million during the nine months ended September 30, 2020 and 2019, respectively.

For the nine months ended September 30, 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.

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.

During the nine months ended September 30, 2019 , w e recognized $ 23 million of insurance recoveries, of which $ 12 million related to property damage, $ 8 million related to business interruption, and $ 3 million related to expense reimbursements.

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

Additionally, we recognized a net loss of $ 7 million within impairment and casualty loss, net in our condensed consolidated statements of comprehensive (loss) income for amounts not expected to be recovered from insurance .

Depreciation of property and equipment was $ 73 million and $ 74 million during the three months ended March 31, 2021 and 2020, respectively.

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

Consolidated Variable Interest Entities ("VIEs") and Investments in Affiliates

5 unchanged sentences

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

September 30, 2020

March 31, 2021

December 31, 2020

6 unchanged sentences

Accounts payable and accrued expenses

Due to hotel manager

Other liabilities

1 unchanged sentence

Investments in affiliates were:

September 30, 2020

March 31, 2021

December 31, 2020

2 unchanged sentences

All others (6 hotels)

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

The affiliates in which we own investments accounted for under the equity method had total debt of approximately $ 943 million as of March 31, 2021 and December 31, 2020, respectively.

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

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

We typically evaluate the carrying value of our goodwill annually.

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

(in millions)

Balance as of December 31, 2019

Impairment loss

Balance as of September 30, 2020

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

Due to the effects of COVID-19, we assessed goodwill for impairment during the first quarter of 2020 and determined that the carrying value of our consolidated and unconsolidated hotel reporting units exceeded their respective estimated fair value.

As a result, we fully impaired our remaining goodwill balance, recognizing an impairment loss of $ 607 million in the first quarter of 2020.

Debt balances and associated interest rates as of March 31, 2021 were:

Principal balance as of

Interest Rate

at September 30, 2020

at March 31, 2021

Maturity Date

September 30, 2020

March 31, 2021

December 31, 2020

7 unchanged sentences

2021 to 2026 (2)(3)

2016 Term Loan (4)

December 2021

2019 Term Facility (4)(5)

September 2024

2021 to 2023 (6)

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

We are actively negotiating a one-year maturity date extension for the $ 12 million loan secured by the Doubletree Spokane to October 2021 .

The loan was not paid in full at its originally scheduled maturity date in October 2020 due to current market conditions.

Failure to pay off the loan constitutes an event of default;

however, we have not received, nor do we expect to receive, notice of the lenders’ intent to foreclose.

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

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

In 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 %.

Additionally, in January 2021, we ceased making debt service payments for the $ 75 million mortgage loan secured by the W Chicago City Center.

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

While Park hopes to negotiate an amendment with the lender, there can be no assurances that an agreement will be reached.

In August 2019, the Company, our Operating Company and PK Domestic entered into a term loan facility (the “2019 Term Facility”).

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

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

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

Credit Facilities

2019 Term Facility

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

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

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

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

2016 Term Loan and Revolver

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 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 September 30, 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.

We incurred $ 6 million of fees related to these amendments during the nine months ended September 30, 2020 that were recognized as deferred financing costs.

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 three months ended June 30, 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 three months ended September 30, 2020.

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

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

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

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

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

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

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

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

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

CMBS and Mortgage Loans

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

(“PK Finance”) issued an aggregate of $ 650 million of senior secured notes due 2025 (“2025 Senior Secured Notes”) and an aggregate of $ 725 million of senior secured notes due 2028 (“2028 Senior Secured Notes”), respectively.

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

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

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

As of March 31, 2021 and December 31, 2020, our condensed consolidated balance sheets included $ 12 million and $ 10 million of restricted cash, respectively, related to our CMBS and mortgage loans.

Debt Maturities

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

The contractual maturities of our debt, assuming the exercise of all extensions that are exercisable solely at our option, as of March 31, 2021 were:

(in millions)

Thereafter (2)

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

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

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

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

September 30, 2020

March 31, 2021

December 31, 2020

1 unchanged sentence

HHV CMBS Loan

2016 Term Loan

2019 Term Facility

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Mortgage loans

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

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

September 30, 2020

Impairment Loss

(in millions)

Property and equipment (1)

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

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

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

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

We are a REIT for U.S.

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Accordingly, no provision for U.S.

federal income taxes has been included in our accompanying condensed consolidated financial statements for the three and nine months ended September 30, 2020 and 2019 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).

federal income taxes has been included in our accompanying condensed consolidated financial statements for the three months ended March 31, 2021 and 2020 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.

federal income tax on taxable sales of built-in gain property through January 3, 2022.

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

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

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

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).

During the nine months ended September 30, 2020, we recognized $ 14 million of income tax expense, which is comprised of $ 14 million of built-in gains tax expense from assets sold during the nine months ended September 30, 2020 and $ 16 million of non-U.S.

income tax expense on the gain from the entity that owns the Hilton São Paulo Morumbi that was sold during the nine months ended September 30, 2020, partially offset by a TRS income tax benefit of $ 20 million from utilizing the NOL carryback provisions of the CARES Act.

We expect $ 24 million of refunds related to the carryback of 2020 NOLs of our TRSs to prior years, as provided by the CARES Act.

During the nine months ended September 30, 2019, we recognized $ 12 million of income tax expense primarily related to taxable income from our TRSs.

During the three months ended March 31, 2021, we recognized $ 1 million of income tax expense, which is comprised primarily of an adjustment to the benefit recognized in 2020 from utilizing the NOL carryback provisions of the CARES Act.

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

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

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 September 30, 2020, 4,512,900 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 September 30, 2020, 80,530 shares of common stock remain available for future issuance.

For both the three months ended September 30, 2020 and 2019, we recognized $ 4 million of share-based compensation expense, and $ 10 million and $ 12 million, respectively, for the nine months ended September 30, 2020 and 2019.

As of September 30, 2020, unrecognized compensation expense was $ 22 million, which is expected to be recognized over a weighted-average period of 1.6 years.

The total fair values of shares vested (calculated as the number of shares multiplied by the vesting date share price) during the nine months ended September 30, 2020 and 2019 were $ 17 million and $ 21 million, respectively.

The 2017 Employee Plan provides that a maximum of 8,000,000 shares of our common stock may be issued, and as of March 31, 2021, 2,910,578 shares of common stock remain available for future issuance.

The 2017 Director Plan provides that a maximum of 450,000 shares of our common stock may be issued, and as of March 31, 2021, 67,094 shares of common stock remain available for future issuance.

For the three months ended March 31, 2021 and 2020, we recognized $ 6 million and $ 2 million of share-based compensation expense, respectively.

As of March 31, 2021, unrecognized compensation expense was $ 30 million, which is expected to be recognized over a weighted-average period of 2.1 years.

The total fair value of shares vested (calculated as the number of shares multiplied by the vesting date share price) during the three months ended March 31, 2021 and 2020 was $ 14 million and $ 17 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 nine months ended September 30, 2020:

The following table provides a summary of RSAs for the three months ended March 31, 2021:

Number of Shares

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Unvested at January 1, 2021

Unvested at September 30, 2020

Unvested at March 31, 2021

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 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.

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

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 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 March 31, 2021, six of the eight Share Price Targets were achieved and thus 75 % of the awards granted were vested.

The following table provides a summary of PSUs for the three months ended March 31, 2021:

Number of Shares

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Unvested at January 1, 2021

Unvested at September 30, 2020

Unvested at March 31, 2021

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

Expected volatility ( 1)

22.0% - 23.0%

Dividend yield ( 2)

3 unchanged sentences

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

As of September 30, 2020, the achievement of the performance condition associated with the Merger cost synergies element of the special one-year awards was not probable and thus no compensation expense was recognized for the Merger cost synergies element for the three and nine months ended September 30, 2020.

Earnings Per Share

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

Three Months Ended September 30,

Nine Months Ended September 30,

(in millions, except per share amounts)

Three Months Ended March 31,

(in millions, except per share amounts)

Net (loss) income attributable to stockholders

Loss allocated to participating securities

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

Net loss attributable to stockholders

Earnings attributable to participating securities

Net loss attributable to stockholders, net of earnings

allocated to participating securities

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Weighted average shares outstanding – diluted

(Loss) Earnings per share - Basic (1)

(Loss) Earnings per share - Diluted (1)

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

Certain of our outstanding equity awards were excluded from the above calculation of EPS for the three and nine months ended September 30, 2020 and 2019 because their effect would have been anti-dilutive.

Loss per share - Basic ( 1)

Loss per share - Diluted ( 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 three months ended March 31, 2021 and 2020 because their effect would have been anti-dilutive.

Business Segment Information

As of September 30, 2020, we have two operating segments, our consolidated hotels and unconsolidated hotels.

As of March 31, 2021, 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.

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Share-based compensation expense;

Casualty gains or losses;

Impairment losses;

Impairment losses and casualty gains or losses;

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

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

Three Months Ended September 30,

Nine Months Ended September 30,

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

Three Months Ended March 31,

(in millions)

2 unchanged sentences

Total revenues

Hotel Adjusted EBITDA

Other revenues

1 unchanged sentence

Corporate general and administrative expense

Impairment and casualty loss, net

Acquisition costs

Impairment loss and casualty gain, net

Other operating expenses

(Loss) gain on sales of assets, net

Gain on sales of assets, net

Interest income

Interest expense

Equity in (losses) earnings from investments in affiliates

Equity in losses from investments in affiliates

Income tax expense

Other loss, net

Severance expense ( 1)

Net (loss) income

Hotel Adjusted EBITDA

Severance expense is included in corporate general and administrative expense in our condensed consolidated statements of comprehensive loss.

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

September 30, 2020

March 31, 2021

December 31, 2020

2 unchanged sentences

Commitments and Contingencies

As of September 30, 2020, we had outstanding commitments under third-party contracts of approximately $ 23 million for capital expenditures at certain hotels.

As of March 31, 2021, we had outstanding commitments under third-party contracts of approximately $ 52 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 the 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.

1 unchanged sentence

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

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

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

In connection with our obligation to indemnify Hilton under the spin-off agreements, we have reserved approximately $ 8 million, as of March 31, 2021, related to litigation with respect to an audit by the Australian Tax Office (“ATO”) of Hilton related to the sale of the Hilton Sydney in June 2015.

In February 2021, we were required to make a payment to Hilton of approximately $ 11 million representing our share of the deposit required by the ATO of Hilton to further defend against the claim and for certain out-of-pocket expenses incurred by Hilton.

This amount could change as the litigation of the ATO’s claim progresses.

Subsequent Events

In April 2021, we sold the 97-room W New Orleans – French Quarter for gross proceeds of approximately $ 24 million, or $ 249,000 per key.

On April 30, 2021, our stockholders approved the amendment and restatement of our 2017 Director Plan to increase the maximum number of shares of our common stock available to issue under the plan from 450,000 to 950,000 .

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

What changed 10-Q

Item 1. Financial Statements