Park Hotels & Resorts Inc. 10-Q

Item 1. Financial Statements. PARK HOTELS & RESORTS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in millions, except share and per share data) September 30, 2023 December 31, 2022 (unaudited) ASSETS Property and equipment, net $ 8,028 $ 8,301 Intangibles, net 42 43 Cash and cash equivalents 726 906 Restricted cash 60 33 Accounts receivable, net of allowance for doubtful accounts of $ 1 and $ 2 149 129 Prepaid expenses 63 58 Other assets 36 47 Operating lease right-of-use assets 201 214 TOTAL ASSETS (variable interest entities – $ 241 and $ 237 ) $ 9,305 $ 9,731 LIABILITIES AND EQUITY Liabilities Debt $ 4,490 $ 4,617 Accounts payable and accrued expenses 293 220 Due to hotel managers 136 141 Other liabilities 221 228 Operating lease liabilities 225 234 Total liabilities (variable interest entities – $ 218 and $ 219 ) 5,365 5,440 Commitments and contingencies – refer to Note 12 Stockholders' Equity Common stock, par value $ 0.01 per share, 6,000,000,000 shares authorized, 210,672,182 shares issued and 209,983,781 shares outstanding as of September 30, 2023 and 224,573,858 shares issued and 224,061,745 shares outstanding as of December 31, 2022 2 2 Additional paid-in capital 4,151 4,321 (Accumulated deficit) retained earnings ( 169 ) 16 Total stockholders' equity 3,984 4,339 Noncontrolling interests ( 44 ) ( 48 ) Total equity 3,940 4,291 TOTAL LIABILITIES AND EQUITY $ 9,305 $ 9,731 Refer to the notes to the unaudited condensed consolidated financial statements. 3 Table of Contents PARK HOTELS & RESORTS INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited, in millions, except per share data) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenues Rooms $ 432 $ 428 $ 1,256 $ 1,153 Food and beverage 159 148 518 431 Ancillary hotel 66 67 203 198 Other 22 19 64 54 Total revenues 679 662 2,041 1,836 Operating expenses Rooms 119 115 343 298 Food and beverage 122 115 377 321 Other departmental and support 161 162 484 453 Other property-level 59 58 182 173 Management fees 31 30 95 84 Casualty and impairment loss — 3 204 4 Depreciation and amortization 65 67 193 204 Corporate general and administrative 18 16 50 48 Other 19 18 61 52 Total expenses 594 584 1,989 1,637 Gain on sales of assets, net — 14 15 13 Operating income 85 92 67 212 Interest income 9 4 29 5 Interest expense ( 65 ) ( 61 ) ( 186 ) ( 185 ) Equity in earnings from investments in affiliates 2 1 9 6 Other gain, net — 1 4 98 Income (loss) before income taxes 31 37 ( 77 ) 136 Income tax benefit (expense) — 3 ( 5 ) 2 Net income (loss) 31 40 ( 82 ) 138 Net income attributable to noncontrolling interests ( 4 ) ( 5 ) ( 8 ) ( 10 ) Net income (loss) attributable to stockholders $ 27 $ 35 $ ( 90 ) $ 128 Earnings (loss) per share: Earnings (loss) per share – Basic $ 0.13 $ 0.15 $ ( 0.42 ) $ 0.55 Earnings (loss) per share – Diluted $ 0.13 $ 0.15 $ ( 0.42 ) $ 0.55 Weighted average shares outstanding – Basic 212 224 216 229 Weighted average shares outstanding – Diluted 212 224 216 229 Refer to the notes to the unaudited condensed consolidated financial statements. 4 Table of Contents PARK HOTELS & RESORTS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in millions) Nine Months Ended September 30, 2023 2022 Operating Activities: Net (loss) income $ ( 82 ) $ 138 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 193 204 Gain on sales of assets, net ( 15 ) ( 13 ) Impairment and casualty loss 204 4 Equity in earnings from investments in affiliates ( 9 ) ( 6 ) Other gain, net — ( 92 ) Share-based compensation expense 14 13 Amortization of deferred financing costs 7 7 Distributions from unconsolidated affiliates 9 6 Changes in operating assets and liabilities 56 78 Net cash provided by operating activities 377 339 Investing Activities: Capital expenditures for property and equipment ( 195 ) ( 104 ) Acquisitions, net ( 11 ) — Proceeds from asset dispositions, net 116 143 Proceeds from the sale of investments in affiliates, net 3 101 Contributions to unconsolidated affiliates ( 4 ) — Net cash (used in) provided by investing activities ( 91 ) 140 Financing Activities: Repayments of credit facilities ( 50 ) — Proceeds from issuance of mortgage debt — 30 Repayments of mortgage debt ( 82 ) ( 36 ) Debt issuance costs ( 1 ) ( 3 ) Dividends paid ( 120 ) ( 5 ) Distributions to noncontrolling interests, net ( 4 ) ( 7 ) Tax withholdings on share-based compensation ( 2 ) ( 3 ) Repurchase of common stock ( 180 ) ( 218 ) Net cash used in financing activities ( 439 ) ( 242 ) Net (decrease) increase in cash and cash equivalents and restricted cash ( 153 ) 237 Cash and cash equivalents and restricted cash, beginning of period 939 763 Cash and cash equivalents and restricted cash, end of period $ 786 $ 1,000 Supplemental Disclosures Non-cash financing activities: Dividends declared but unpaid $ 31 $ 2 Refer to the notes to the unaudited condensed consolidated financial statements. 5 Table of Contents PARK HOTELS & RESORTS INC. CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (unaudited, in millions) Common Stock Additional Paid-in Capital Retained Earnings (Accumulated Deficit) Non- controlling Interests Total Shares Amount Balance as of December 31, 2022 224 $ 2 $ 4,321 $ 16 $ ( 48 ) $ 4,291 Share-based compensation, net 1 — — 2 — 2 Net income — — — 33 — 33 Dividends and dividend equivalents (1) — — — ( 32 ) — ( 32 ) Distributions to noncontrolling interests — — — — ( 1 ) ( 1 ) Repurchase of common stock ( 9 ) — ( 105 ) — — ( 105 ) Balance as of March 31, 2023 216 2 4,216 19 ( 49 ) 4,188 Share-based compensation, net — — 5 — — 5 Net (loss) income — — — ( 150 ) 4 ( 146 ) Dividends and dividend equivalents (1) — — — ( 34 ) — ( 34 ) Balance as of June 30, 2023 216 2 4,221 ( 165 ) ( 45 ) 4,013 Share-based compensation, net — — 5 — — 5 Net income — — — 27 4 31 Dividends and dividend equivalents (1) — — — ( 31 ) — ( 31 ) Distributions to noncontrolling interests — — — — ( 3 ) ( 3 ) Repurchase of common stock ( 6 ) — ( 75 ) — — ( 75 ) Balance as of September 30, 2023 210 $ 2 $ 4,151 $ ( 169 ) $ ( 44 ) $ 3,940 Common Stock Additional Paid-in Capital (Accumulated Deficit) Retained Earnings Non- controlling Interests Total Shares Amount Balance as of December 31, 2021 236 $ 2 $ 4,533 $ ( 83 ) $ ( 49 ) $ 4,403 Share-based compensation, net — — 1 — — 1 Net (loss) income — — — ( 57 ) 1 ( 56 ) Dividends and dividend equivalents (2) — — — ( 2 ) — ( 2 ) Repurchase of common stock ( 3 ) — ( 61 ) — — ( 61 ) Balance as of March 31, 2022 233 2 4,473 ( 142 ) ( 48 ) 4,285 Share-based compensation, net — — 5 — — 5 Net income — — — 150 4 154 Dividends and dividend equivalents (2) — — — ( 2 ) — ( 2 ) Distributions to noncontrolling interests — — — — ( 4 ) ( 4 ) Repurchase of common stock ( 8 ) — ( 157 ) — — ( 157 ) Balance as of June 30, 2022 225 2 4,321 6 ( 48 ) 4,281 Share-based compensation, net — — 4 — — 4 Net income — — — 35 5 40 Dividends and dividend equivalents (2) — — — ( 3 ) — ( 3 ) Distributions to noncontrolling interests — — — — ( 3 ) ( 3 ) Balance as of September 30, 2022 225 $ 2 $ 4,325 $ 38 $ ( 46 ) $ 4,319 ___________________________________ (1) Dividends declared per common share were $ 0.15 for each of the three months ended March 31, 2023, June 30, 2023 and September 30, 2023. (2) Dividends declared per common share were $ 0.01 for each of the three months ended March 31, 2022, June 30, 2022 and September 30, 2022. Refer to the notes to the unaudited condensed consolidated financial statements. 6 Table of Contents PARK HOTELS & RESORTS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 1: Organization Organization Park Hotels & Resorts Inc. (“we,” “us,” “our” or the “Company” and, exclusive of any subsidiaries, "Park Parent") 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”) 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. 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. 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. Park Parent owned 100 % of the interests of our Operating Company until December 31, 2021 when the business undertook an internal reorganization transitioning our structure to a traditional umbrella partnership REIT ("UPREIT") structure. Effective January 1, 2022, Park Parent became the managing member of our Operating Company and PK Domestic REIT Inc., a direct subsidiary of Park Parent, became a member of our Operating Company. We may, in the future, issue interests in (or from) our Operating Company in connection with acquiring hotels, financings, issuance of equity compensation or other purposes. Note 2: Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation Principles of Consolidation The unaudited condensed 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”). We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with U.S. GAAP. In our opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, including normal recurring items, considered necessary for a fair presentation of the interim periods. All significant intercompany transactions and balances within the financial statements have been eliminated. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2022 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on February 23, 2023. 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. Interim results are not necessarily indicative of full year performance. 7 Table of Contents Reclassifications Certain line items on the audited condensed consolidated balance sheet as of December 31, 2022 have been reclassified to conform to the current period presentation. Summary of Significant Accounting Policies Our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 23, 2023, contains a discussion of significant accounting policies. There have been no significant changes to our significant accounting policies since December 31, 2022. Note 3: Acquisitions and Dispositions Acquisitions In March 2023, we acquired two parcels of land, adjacent to the Hilton Hawaiian Village Waikiki Beach Resort, for a purchase price of approximately $ 18 million, including transaction costs. We accounted for the purchase as an acquisition of an asset, and the entire purchase price was allocated to land. Dispositions In February 2023, we sold the Hilton Miami Airport hotel for gross proceeds of $ 118.25 million. We recognized a net gain of approximately $ 15 million, which is included in gain on sales of assets, net in our condensed consolidated statements of operations. Additionally, in June 2023, the ground lessor terminated the ground lease for the Embassy Suites Phoenix Airport hotel and, pursuant to an agreement, we received an early termination fee of approximately $ 4 million, which is included in other gain, net in our condensed consolidated statements of operations. During the nine months ended September 30, 2022, we sold the five consolidated hotels listed in the table below and received total gross proceeds of approximately $ 149 million. We recognized a net gain of approximately $ 15 million, which is included in gain on sales of assets, net in our condensed consolidated statements of operations. Hotel Location Month Sold Hampton Inn & Suites Memphis – Shady Grove Memphis, Tennessee April 2022 Hilton Chicago/Oak Brook Suites Chicago, Illinois May 2022 Homewood Suites by Hilton Seattle Convention Center Pike Street Seattle, Washington June 2022 Hilton Garden Inn Chicago/Oakbrook Terrace Chicago, Illinois July 2022 Hilton Garden Inn LAX/El Segundo El Segundo, California September 2022 Additionally, in June 2022, we sold our ownership interests in the joint ventures that own and operate the Hilton San Diego Bayfront for gross proceeds of $ 157 million. Our gross proceeds were reduced by $ 55 million for our share of the mortgage debt in the joint venture. We recognized a gain of approximately $ 92 million, net of selling costs, which is included in other gain, net in our condensed consolidated statements of operations. 8 Table of Contents Note 4: Property and Equipment Property and equipment were: September 30, 2023 December 31, 2022 (in millions) Land $ 3,196 $ 3,317 Buildings and leasehold improvements 6,315 6,512 Furniture and equipment 983 994 Construction-in-progress 295 201 10,789 11,024 Accumulated depreciation ( 2,761 ) ( 2,723 ) $ 8,028 $ 8,301 Depreciation of property and equipment was $ 65 million and $ 67 million during the three months ended September 30, 2023 and 2022, respectively, and $ 193 million and $ 203 million during the nine months ended September 30, 2023 and 2022, respectively. For the nine months ended September 30, 2023, we recognized an impairment loss of approximately $ 202 million related to one of the hotels securing our $ 725 million non-recourse CMBS loan as a result of a decision to cease making debt service payments that we expect will result in us no longer owning the property and benefiting from the cash flow. Refer to Note 6: "Debt" and Note 7: "Fair Value Measurements" for additional information. Note 5: Consolidated Variable Interest Entities ("VIEs") and Investments in Affiliates Consolidated VIEs We consolidate VIEs that own three 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 condensed consolidated balance sheets include the following assets and liabilities of these entities: September 30, 2023 December 31, 2022 (in millions) Property and equipment, net $ 209 $ 208 Cash and cash equivalents 21 21 Restricted cash 3 2 Accounts receivable, net 6 4 Prepaid expenses 2 2 Debt 203 205 Accounts payable and accrued expenses 11 8 Due to hotel manager 1 2 Other liabilities 3 4 Unconsolidated Entities Four of our hotels are owned by unconsolidated joint ventures in which we hold an interest, are accounted for using the equity method and had total debt of approximately $ 721 million as of both September 30, 2023 and December 31, 2022. Substantially all the debt is secured solely by the affiliates’ assets or is guaranteed by other partners without recourse to us. 9 Table of Contents Note 6: Debt Debt balances and associated interest rates as of September 30, 2023 were: Principal balance as of Interest Rate at September 30, 2023 Maturity Date September 30, 2023 December 31, 2022 (in millions) SF Mortgage Loan (1) 7.11 % (2) November 2023 $ 725 $ 725 HHV Mortgage Loan (1) 4.20 % November 2026 1,275 1,275 Other mortgage loans (3) Average rate of 4.37 % 2024 to 2027 (4) 387 469 Revolver (5) SOFR + 2.10 % December 2026 — 50 2025 Senior Notes (6) 7.50 % June 2025 650 650 2028 Senior Notes (6) 5.88 % October 2028 725 725 2029 Senior Notes (6) 4.88 % May 2029 750 750 4,512 4,644 Add: unamortized premium 1 3 Less: unamortized deferred financing costs and discount ( 23 ) ( 30 ) $ 4,490 $ 4,617 _____________________________________ (1) In October 2016, we entered into a $ 725 million CMBS loan ("SF Mortgage Loan") secured by the Hilton San Francisco Union Square and the Parc 55 San Francisco – a Hilton Hotel (collectively, the "Hilton San Francisco Hotels") and a $ 1.275 billion CMBS loan secured by the Hilton Hawaiian Village Waikiki Beach Resort (“HHV Mortgage Loan”). (2) In June 2023, we ceased making debt service payments toward the SF Mortgage Loan, and we have received notice of default from the servicer. The stated rate on the loan is 4.11 %, however, beginning June 1, 2023, the default interest rate on the loan is 7.11 %. Additionally, beginning June 1, 2023, the loan accrues a monthly late payment administrative fee of 3 % of the monthly amount due. In October 2023, the trustee for the SF Mortgage Loan filed a lawsuit against the borrowers under the SF Mortgage Loan. In connection with the lawsuit, the court appointed a receiver to take control of the Hilton San Francisco Hotels, which serve as security for the SF Mortgage Loan, and their operations, and thus, we have no further economic interest in the operations of the hotels. Refer to Note 13: "Subsequent Events" for additional information. (3) In June 2023, we fully repaid the $ 75 million mortgage loan secured by the W Chicago – City Center. (4) 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 with six months of notice. As of September 30, 2023, Park had not received notice from the lender. (5) In February 2023, we fully repaid the $ 50 million outstanding balance under our revolving credit facility ("Revolver"). 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. As of September 30, 2023, we had approximately $ 4 million outstanding on a standby letter of credit and $ 946 million of available capacity under our Revolver. (6) 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 notes due 2025 (“2025 Senior Notes”) and an aggregate of $ 725 million of senior notes due 2028 (“2028 Senior Notes”), respectively. Additionally, in May 2021, our Operating Company, PK Domestic and PK Finance issued an aggregate of $ 750 million of senior notes due 2029 (“2029 Senior Notes”). We are required to deposit with lenders certain cash reserves for restricted uses. As of September 30, 2023 and December 31, 2022, our condensed consolidated balance sheets included $ 27 million and $ 6 million of restricted cash, respectively, related to our mortgage loans. As of September 30, 2023, restricted cash included $ 26 million of cash related to the default on our SF Mortgage Loan and the use of such funds is limited pursuant to the terms of the loan and associated agreements. 10 Table of Contents 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, 2023 were: Year (in millions) 2023 $ 781 2024 7 2025 657 2026 1,563 2027 30 Thereafter (1) 1,474 $ 4,512 _____________________________________ (1) Assumes the exercise of all extensions that are exercisable solely at our option. Note 7: 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: September 30, 2023 December 31, 2022 Hierarchy Level Carrying Amount Fair Value Carrying Amount Fair Value (in millions) Liabilities: SF Mortgage Loan 3 $ 725 $ 722 $ 725 $ 692 HHV Mortgage Loan 3 1,275 1,149 1,275 1,142 Other mortgage loans 3 387 357 469 435 Revolver 3 — — 50 50 2025 Senior Notes 1 650 650 650 652 2028 Senior Notes 1 725 663 725 661 2029 Senior Notes 1 750 638 750 635 During the nine months ended September 30, 2023, we recognized an impairment loss related to one of our hotels. The estimated value of the asset that was measured on a nonrecurring basis was: September 30, 2023 Fair Value Impairment Loss (in millions) Property and equipment (1) $ 234 $ 202 Total $ 234 $ 202 _____________________________________ (1) Fair value as of September 30, 2023 was measured using significant unobservable inputs (Level 3). We estimated fair value of the asset using a discounted cash flow analysis, with an estimated stabilized growth rate of 3 %, a discounted cash flow term of 10 years, terminal capitalization rate of 6.3 %, and discount rate of 9.5 %. The discount and terminal capitalization rates used for the fair values of the asset reflected the risk profile of the market where the property is located. 11 Table of Contents Note 8: 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 (and state) 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 condensed consolidated financial statements for the three or nine months ended September 30, 2023 and 2022 related to our REIT activities. Our taxable REIT subsidiaries (“TRSs”) are generally subject to U.S. federal, state and local, and foreign income taxes (as applicable). During the nine months ended September 30, 2023, we recognized income tax expense of $ 5 million primarily related to taxable income from our TRSs. Note 9: Share-Based Compensation We issue equity-based awards to our employees pursuant to the 2017 Omnibus Incentive Plan (the “2017 Employee Plan”) and our non-employee directors pursuant to the 2017 Stock Plan for Non-Employee Directors (the “2017 Director Plan”), both of which are amended and restated from time to time. An amendment and restatement of the 2017 Employee Plan was approved by our Board of Directors in February 2023 and approved by our stockholders in April 2023 to, among other changes, increase the number of shares available to be issued by 6,070,000 , from 8,000,000 to 14,070,000 shares. As of September 30, 2023, 7,498,093 shares of common stock remain available for future issuance. The 2017 Director Plan provides that a maximum of 950,000 shares of our common stock may be issued, and as of September 30, 2023, 263,524 shares of common stock remain available for future issuance. For the three months ended September 30, 2023 and 2022, we recognized $ 5 million and $ 4 million, respectively, of share-based compensation expense and $ 14 million and $ 13 million, respectively, for the nine months ended September 30, 2023 and 2022. As of September 30, 2023, unrecognized compensation expense was $ 24 million, which is expected to be recognized over a weighted-average period of 1.6 years. The total fair value of shares vested (calculated as the number of shares multiplied by the vesting date share price) for both the nine months ended September 30, 2023 and 2022 was $ 7 million. 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, 2023: Number of Shares Weighted-Average Grant Date Fair Value Unvested at January 1, 2023 843,846 $ 20.19 Granted 687,041 13.41 Vested ( 530,137 ) 20.46 Forfeited ( 13,251 ) 15.60 Unvested at September 30, 2023 987,499 $ 15.40 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 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 12 Table of Contents 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 September 30, 2023, 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 nine months ended September 30, 2023: Number of Shares Weighted-Average Grant Date Fair Value Unvested at January 1, 2023 1,198,325 $ 20.71 Granted 590,425 19.96 Forfeited ( 261,554 ) 24.80 Unvested at September 30, 2023 1,527,196 $ 19.72 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 48.0 % Dividend yield (1) — Risk-free rate 4.3 % Expected term 3 years _____________________________________ (1) Dividends are assumed to be reinvested in shares of our common stock and dividends will not be paid unless shares vest. Note 10: 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, 2023 2022 2023 2022 (in millions, except per share amounts) Numerator: Net income (loss) attributable to stockholders $ 27 $ 35 $ ( 90 ) $ 128 Earnings attributable to participating securities — — ( 1 ) — Net income (loss) attributable to stockholders , net of earnings allocated to participating securities 27 35 ( 91 ) 128 Denominator: Weighted average shares outstanding – basic 212 224 216 229 Unvested restricted shares — — — — Weighted average shares outstanding – diluted 212 224 216 229 Earnings (loss) per share – Basic (1) $ 0.13 $ 0.15 $ ( 0.42 ) $ 0.55 Earnings (loss) per share – Diluted (1) $ 0.13 $ 0.15 $ ( 0.42 ) $ 0.55 _____________________________________ (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, 2023 and 2022 because their effect would have been anti-dilutive. 13 Table of Contents Note 11: Business Segment Information As of September 30, 2023, 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 before interest expense, taxes and depreciation and amortization (“EBITDA”). Hotel Adjusted EBITDA, presented herein, is calculated as EBITDA from hotel operations, adjusted to exclude the following items that are not reflective of our ongoing operating performance or incurred in the normal course of business, and thus excluded from management's analysis in making day to day operating decisions and evaluations of our operating performance against other companies within our industry: • 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 income to Hotel Adjusted EBITDA: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (in millions) Revenues: Total consolidated hotel revenues $ 657 $ 643 $ 1,977 $ 1,782 Other revenues 22 19 64 54 Total revenues $ 679 $ 662 $ 2,041 $ 1,836 Net income (loss) $ 31 $ 40 $ ( 82 ) $ 138 Other revenues ( 22 ) ( 19 ) ( 64 ) ( 54 ) Depreciation and amortization expense 65 67 193 204 Corporate general and administrative expense 18 16 50 48 Casualty and impairment loss — 3 204 4 Other operating expenses 19 18 61 52 Gain on sales of assets, net — ( 14 ) ( 15 ) ( 13 ) Interest income ( 9 ) ( 4 ) ( 29 ) ( 5 ) Interest expense 65 61 186 185 Equity in earnings from investments in affiliates ( 2 ) ( 1 ) ( 9 ) ( 6 ) Income tax (benefit) expense — ( 3 ) 5 ( 2 ) Other gain, net — ( 1 ) ( 4 ) ( 98 ) Other items 8 4 21 11 Hotel Adjusted EBITDA $ 173 $ 167 $ 517 $ 464 14 Table of Contents The following table presents total assets for our consolidated hotels, reconciled to total assets: September 30, 2023 December 31, 2022 (in millions) Consolidated hotels $ 9,298 $ 9,726 All other 7 5 Total assets $ 9,305 $ 9,731 Note 12: Commitments and Contingencies As of September 30, 2023, we had outstanding commitments under third-party contracts of approximately $ 135 million for capital expenditures at our properties, of which $ 30 million relates to projects at the Bonnet Creek complex, including the meeting space expansion project and renovation of guestrooms, existing meeting space, lobbies, golf course and other recreational amenities, $ 28 million relates to the complete renovation of all guestrooms, public spaces, and certain hotel infrastructure at the Casa Marina Key West, Curio Collection, and $ 25 million relates to the Tapa Tower guestroom renovations at the Hilton Hawaiian Village Waikiki Beach Resort. 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 provide that Hilton will 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 $ 8 million as of September 30, 2023 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. This amount could change as the litigation of the ATO’s claim progresses. Note 13: Subsequent Events In October 2023, the trustee for the SF Mortgage Loan filed a lawsuit against the borrowers under the SF Mortgage Loan. In connection with the lawsuit, the court appointed a receiver to take control of the Hilton San Francisco Hotels, which serve as security for the SF Mortgage Loan, and their operations, and thus, we have no further economic interest in the operations of the hotels. The receiver will operate and has authority over the hotels and, until no later than November 1, 2024, has the ability to sell the hotels. The lawsuit contemplates the receivership will end with a non-judicial foreclosure by December 2, 2024, if the hotels are not sold within the predetermined sale period. The effective exit from the Hilton San Francisco Hotels results in a required distribution. Thus, our Board of Directors declared a special cash dividend of $ 0.77 per share on October 27, 2023, which will be paid on January 16, 2024 to stockholders of record as of December 29, 2023. 15 Table of Contents