What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-01 compared with 2023-11-02 · 97 added, 163 removed, 206 unchanged (56% of the section changed)

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This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”).

Forward-looking statements include, but are not limited to, statements related to the anticipated effects of the Company's decision to cease payments on its $725 million non-recourse CMBS loan ("SF Mortgage Loan") secured by two of our San Francisco hotels – the 1,921-room Hilton San Francisco Union Square and the 1,024-room Parc 55 San Francisco – a Hilton Hotel (collectively, the "Hilton San Francisco Hotels") and the effects of the lender's exercise of its remedies, including placing such hotels into receivership, as well as our current expectations regarding the performance of our business, our financial results, our liquidity and capital resources, including anticipated repayment of certain of the Company's indebtedness, the completion of capital allocation priorities, the expected repurchase of the Company's stock, the impact from macroeconomic factors (including inflation, increases in interest rates, potential economic slowdown or a recession and geopolitical conflicts), the effects of competition, the effects of future legislation or regulations, the expected completion of anticipated dispositions, the declaration and payment of future dividends and other non-historical statements.

Forward-looking statements include, but are not limited to, statements related to the effects of our decision to cease payments on the $725 million non-recourse CMBS loan ("SF Mortgage Loan") secured by two of our San Francisco hotels – the 1,921-room Hilton San Francisco Union Square and the 1,024-room Parc 55 San Francisco – a Hilton Hotel (collectively, the "Hilton San Francisco Hotels") and the lender's exercise of its remedies, including placing such hotels into receivership, as well as our current expectations regarding the performance of our business, our financial results, our liquidity and capital resources, including anticipated repayment of certain of our indebtedness, the completion of capital allocation priorities, the expected repurchase of our stock, the impact from macroeconomic factors (including inflation, elevated interest rates, potential economic slowdown or a recession and geopolitical conflicts), the effects of competition, the effects of future legislation or regulations, the expected completion of anticipated dispositions, the declaration, payment and any change in amounts of future dividends and other non-historical statements.

Forward-looking statements include all statements that are not historical facts, and in some cases, can be identified by the use of forward-looking terminology such as the words “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “projects,” “predicts,” “intends,” “plans,” “estimates,” “anticipates”, “hopes” or the negative version of these words or other comparable words.

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We have a diverse portfolio of iconic and market-leading hotels and resorts with significant underlying real estate value.

We currently have interests in 43 hotels (excluding the Hilton San Francisco Hotels), consisting of premium-branded hotels and resorts with over 26,000 rooms, of which over 86% are luxury and upper upscale (as defined by Smith Travel Research) and are located in prime U.S.

We currently have interests in 43 hotels, consisting of premium-branded hotels and resorts with over 26,000 rooms, of which over 86% are luxury and upper upscale (as defined by Smith Travel Research) and are located in prime U.S.

markets and its territories.

Our high-quality portfolio currently includes hotels mostly in major urban and convention areas, such as New York City, Washington, D.C., Chicago, San Francisco, Boston, New Orleans and Denver;

Our high-quality portfolio currently includes hotels mostly in major urban and convention areas, such as New York City, Washington, D.C., Chicago, Boston, New Orleans and Denver;

and premier resorts in key leisure destinations, including Hawaii, Orlando, Key West and Miami Beach;

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Refer to Note 10:

"Business Segment Information" in our unaudited condensed consolidated financial statements included elsewhere within this Quarterly Report on Form 10-Q for additional information regarding our operating segments.

Recent Events

During the three months ended September 30, 2023, we repurchased approximately 5.8 million shares of our common stock for a total purchase price of $75 million.

Additionally, 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.

Current economic challenges have affected discretionary spending and travel, including supply chain disruptions and increased inflation.

Inflationary concerns may affect both consumer sentiment and demand for travel, as well as increased labor or other costs to maintain or operate hotels that cannot be reduced without adversely affecting business growth or hotel value.

However, we have relied on the performance of our hotels and active asset management to mitigate the effects of inflation and current macroeconomic uncertain ty.

During the third quarter of 2023, we have continued to experience improvements in overall demand across our portfolio, although average daily rate ("ADR") growth has slowed as the industry recovery has stabilized and seasonal patterns have normalized.

While there can be no assurances that we will not experience further fluctuations in hotel revenues or earnings at our hotels due to inflation and other macroeconomic factors, such as further increases in interest rates, local economic factors and demand, a potential economic slowdown or a recession and geopolitical conflicts, we expect the positive momentum to continue through the remainder of 2023 and into 2024 based on current demand trends and as demand from international travel continues to improve.

"Business Segment Information"

in our unaudited condensed consolidated financial statements included elsewhere within this Quarterly Report on Form 10-Q for additional information regarding our operating segments.

Economic disruptions, including as a result of supply chain disruptions, elevated interest rates and elevated rates of inflation may adversely affect our business.

Inflationary concerns can affect both consumer sentiment and demand for travel, as well as increase labor or other costs to maintain or operate hotels that cannot be reduced without adversely affecting business growth or hotel value.

However, we have relied on the performance of our hotels and active asset management to mitigate the effects of inflation, which is expected to continue to stabilize, and current macroeconomic uncertain ty.

During the first quarter of 2024, we continued to experience improvements in overall demand across our portfolio, although average daily rate ("ADR") growth has slowed as the industry recovery has stabilized and seasonal patterns have normalized.

While there can be no assurances that we will not experience further fluctuations in hotel revenues or earnings at our hotels due to inflation and other macroeconomic factors, local economic factors and demand, a potential economic slowdown or a recession and geopolitical conflicts, we expect the positive momentum to continue for the remainder of 2024 based on current demand trends, expected increases in city-wide events and as demand from international travel continues to improve.

Key Business Metrics Used by Management

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

Comparable Hotels Data

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

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

Our comparable hotels data includes results from hotels that were active and operating in our portfolio since January 1st of the previous year and excludes results from property dispositions that have occurred through March 31, 2024 and the Hilton San Francisco Hotels, which were placed into receivership at the end of October 2023.

Non-GAAP Financial Measures

We also evaluate the performance of our business through certain other financial measures that are not recognized under U.S.

Each of these non-GAAP financial measures should be considered by investors as supplemental measures to GAAP performance measures such as total revenues, operating profit and net income (loss).

Each of these non-GAAP financial measures should be considered by investors as supplemental measures to GAAP performance measures such as total revenues, operating profit and net income.

EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA

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

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

Adjusted EBITDA, presented herein, is calculated as EBITDA, further 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:

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EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA are not recognized terms under U.S.

GAAP and should not be considered as alternatives to net income (loss) or other measures of financial performance or liquidity derived in accordance with U.S.

GAAP and should not be considered as alternatives to net income or other measures of financial performance or liquidity derived in accordance with U.S.

In addition, our definitions of EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA may not be comparable to similarly titled measures of other companies.

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and (ii) EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties as a common performance measure to compare results or estimate valuations across companies in our industry.

EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA have limitations as analytical tools and should not be considered either in isolation or as a substitute for net income (loss) or other methods of analyzing our operating performance and results as reported under U.S.

EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA have limitations as analytical tools and should not be considered either in isolation or as a substitute for net income or other methods of analyzing our operating performance and results as reported under U.S.

Some of these limitations are:

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We do not use or present EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA as measures of our liquidity or cash flow.

These measures have limitations as analytical tools and should not be considered either in isolation or as a

substitute for cash flow or other methods of analyzing our cash flows and liquidity as reported under U.S.

These measures have limitations as analytical tools and should not be considered either in isolation or as a substitute for cash flow or other methods of analyzing our cash flows and liquidity as reported under U.S.

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

Some of these limitations are:

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• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA do not reflect any cash requirements for such replacements.

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

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

(in millions)

Net income (loss) $ 31 $ 40 $ (82) $ 138

Net income $ 29 $ 33

Depreciation and amortization expense 65 64

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Interest expense 53 52

Income tax (benefit) expense — (3) 5 (2)

Interest expense associated with hotels in receivership (1)

Income tax expense 1 2

Interest expense, income tax and depreciation and amortization included in equity in earnings from investments in affiliates 3 3

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Gain on sales of assets, net — (15)

Gain on sale of investments in affiliates (1)

Gain on derecognition of assets (1)

Share-based compensation expense 4 4

Casualty and impairment loss — 3 204 4

Impairment and casualty loss 6 1

Other items 6 4

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(1) Included in other gain, net.

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

(1) For the three months ended March 31, 2024, represents accrued interest expense associated with the default of the SF Mortgage Loan, which was offset by a gain on derecognition for the corresponding increase of the contract asset on our condensed consolidated balance sheets, as we expect to be released from this obligation upon final resolution with the lender.

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

Nareit FFO attributable to stockholders and Adjusted FFO attributable to stockholders

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

We calculate funds from (used in) operations (“FFO”) attributable to stockholders for a given operating period in accordance with standards established by the National Association of Real

Estate Investment Trusts (“Nareit”), as net income (loss) attributable to stockholders (calculated in accordance with U.S.

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

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

Adjustments for unconsolidated joint ventures are calculated to reflect our pro rata share of the FFO of those entities on the same basis.

As noted by Nareit in its December 2018 “Nareit Funds from Operations White Paper – 2018 Restatement,” since real estate values historically have risen or fallen with market conditions, many industry investors have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves.

As noted by Nareit in its

December 2018 “Nareit Funds from Operations White Paper – 2018 Restatement,” since real estate values historically have risen or fallen with market conditions, many industry investors have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves.

For these reasons, Nareit adopted the FFO metric in order to promote an industry-wide measure of REIT operating performance.

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

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

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

(in millions, except per share amounts)

Net income (loss) attributable to stockholders $ 27 $ 35 $ (90) $ 128

Net income attributable to stockholders $ 28 $ 33

Depreciation and amortization expense 65 64

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Gain on sales of assets, net — (15)

Gain on sale of investments in affiliates (1)

Gain on derecognition of assets (1)

Impairment loss 5 —

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Share-based compensation expense 4 4

Interest expense associated with hotels in receivership (1)

Other items 8 5

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(1) Included in other gain, net.

(2) For the three and nine months ended September 30, 2023, includes $6 million and $8 million, respectively, of incremental interest expense associated with the default of the SF Mortgage Loan.

(2) Per share amounts are calculated based on unrounded numbers.

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Property dispositions have had a significant effect on the year-over-year comparability of our operations as further illustrated in the table of Hotel Revenues and Operating Expenses below.

Since January 1, 2022, we have disposed of seven consolidated hotels.

Our non-comparable hotels consists of one hotel sold and one hotel returned to the lessor upon early termination of the ground lease during 2023.

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

Additionally, our non-comparable hotels also consist of the two Hilton San Francisco Hotels, which are excluded from our consolidated results for the three months ended March 31, 2024, as a result of the hotels being placed into receivership in October 2023.

Changes in our operating revenues and expenses from these non-comparable hotels are shown below.

Hotel Revenues and Operating Expenses

Three Months Ended September 30,

2023 2022 Change Change from Property Dispositions Change from Other Factors (1)

(in millions)

Rooms revenue $ 432 $ 428 $ 4 $ (9) $ 13

Food and beverage revenue 159 148 11 (2) 13

Ancillary hotel revenue 66 67 (1) — (1)

Rooms expense 119 115 4 (2) 6

Food and beverage expense 122 115 7 (1) 8

Other departmental and support expense 161 162 (1) (4) 3

Other property-level expense 59 58 1 — 1

Management fees expense 31 30 1 — 1

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(1) Change from other factors primarily relates to the market-specific conditions discussed below.

Nine Months Ended September 30,

2023 2022 Change Change from Property Dispositions Change from Other Factors (1)

Three Months Ended March 31, Change from Non-Comparable Hotels

2024 2023 Change Change from Comparable Hotels (1)

Change from the Hilton San Francisco Hotels Change from Other Non-Comparable Hotels

(in millions)

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Other departmental and support expense 145 158 (13) 2 (13) (2)

Other property-level expense 182 173 9 (3) 12

Other property expense 52 60 (8) (3) (5) —

Management fees expense 30 30 — 2 (2) —

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(1) Change from other factors primarily relates to the market-specific conditions discussed below.

Group, transient, contract and other rooms revenue for the three and nine months ended September 30, 2023, as well as the change for each segment compared to the same periods in 2022 are as follows:

Three Months Ended September 30,

2023 2022 Change Change from Property Dispositions Change from Other Factors (1)

(in millions)

Group rooms revenue $ 112 $ 97 $ 15 $ (1) $ 16

Transient rooms revenue 283 302 (19) (7) (12)

Contract rooms revenue 27 20 7 (1) 8

Other rooms revenue 10 9 1 — 1

Rooms revenue $ 432 $ 428 $ 4 $ (9) $ 13

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(1) Change from other factors primarily relates to the market-specific conditions discussed below.

Nine Months Ended September 30,

2023 2022 Change Change from Property Dispositions Change from Other Factors (1)

(1) Change from our comparable hotels primarily relates to the market-specific conditions discussed below.

Group, transient, contract and other rooms revenue for the three months ended March 31, 2024, as well as the change for each segment compared to the same period in 2023 are as follows:

Three Months Ended March 31, Change from

Non-Comparable Hotels

2024 2023 Change Change from Comparable Hotels (1)

Change from the Hilton San Francisco Hotels Change from Other Non-Comparable Hotels

(in millions)

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(1) Change from other factors primarily relates to the market-specific conditions discussed below.

(1) Change from our comparable hotels primarily relates to the market-specific conditions discussed below.

Market-Specific Conditions

The increases in hotel revenues and operating expenses from other factors were primarily a result of significant occupancy increases in certain of our largest markets.

During the three months ended September 30, 2023, our New York, Hawaii and Seattle markets experienced the most significant changes compared to the same period in 2022.

The New York Hilton Midtown benefited from increases in group and transient demand resulting in increases in occupancy and ADR of 17.8 percentage points and 4.1%, respectively, for the three months ended September 30, 2023 compared to the same period in 2022.

Combined occupancy at our two Hawaii hotels increased 2.3 percentage points for the three months ended September 30, 2023 compared to same period in 2022, driven by an increase in group demand primarily at the Hilton Hawaiian Village Waikiki Beach Resort, which experienced increases in both occupancy and ADR of 1.5 percentage points and 1.6%, respectively.

Combined occupancy at our Seattle hotels increased 14.2 percentage points for the three months ended September 30, 2023 compared to the same period in 2022 due to an increase in transient demand.

During the nine months ended September 30, 2023, our Hawaii, New York and and Chicago markets experienced the most significant changes compared to the same period in 2022.

Combined occupancy and ADR at our two Hawaii hotels increased 6.3 percentage points and 4.2%, respectively, for the nine months ended September 30, 2023 compared to same period in 2022, driven by increases in group and domestic transient demand primarily at the Hilton Hawaiian Village Waikiki Beach Resort, which experienced increases in both occupancy and ADR of 6.5 percentage points and 5.8%, respectively.

The New York Hilton Midtown benefited from increases in group and transient demand resulting in increases in occupancy of 23.5 percentage points for the nine months ended September 30, 2023 compared to the same period in 2022.

Combined occupancy at our Chicago hotels increased 7.7 percentage points for the nine months ended September 30, 2023 compared to the same period in 2022 due to increases in transient and group demand.

Additionally, for the nine months ended September 30, 2023, hotel revenues and operating expenses for the Parc 55 San Francisco – a Hilton Hotel increased $23 million and $15 million, respectively, compared to the same period in

2022 as the hotel's operations were suspended until May 2022.

These increases are partially offset by the impact from the suspension of operations at the Casa Marina Key West, Curio Collection, beginning in May 2023 due to renovations, which resulted in a decrease in hotel revenues of $11 million and $28 million, respectively, and operating expenses of $5 million and $10 million, respectively, for the three and nine months ended September 30, 2023, compared to the same periods in 2022.

The increases in hotel revenues and operating expenses for our comparable hotels during the three months ended March 31, 2024, as compared to the same period in 2023, were primarily attributable to our hotels in Orlando, New York, Key West, Hawaii and New Orleans markets.

The Signia by Hilton Orlando Bonnet Creek benefited from an increase in group demand resulting in increases in occupancy and ADR of 5.4 percentage points and 8.3%, respectively, for the three

months ended March 31, 2024 compared to the same period in 2023.

The New York Hilton Midtown benefited from increases in both group and transient demand resulting in increases in occupancy and ADR of 5.7 percentage points and 2.8%, respectively, for the three months ended March 31, 2024 compared to the same period in 2023.

Combined occupancy and ADR at our Key West hotels increased 5.0 percentage points and 16.7%, respectively, for the three months ended March 31, 2024 compared to the same period in 2023 due to increases in group and transient demand primarily at the Casa Marina Key West, Curio Collection, which experienced increases in both occupancy and ADR of 6.1 percentage points and 24.4%, respectively, following a comprehensive renovation of the hotel that started in May 2023.

Combined occupancy and ADR at our two Hawaii hotels increased 2.1 percentage points and 4.3%, respectively, for the three months ended March 31, 2024 compared to same period in 2023, driven by increases in group and transient demand primarily at the Hilton Hawaiian Village Waikiki Beach Resort, which experienced increases in both occupancy and ADR of 2.5 percentage points and 4.7%, respectively.

Additionally, our Hawaii hotels benefited from a state unemployment tax refund of approximately $4 million received during the three months ended March 31, 2024.

The Hilton New Orleans Riverside benefited from an increase in group demand resulting in an increase of occupancy of 9.4 percentage points compared to the same period in 2023.

Other revenue and Other operating expense

During the three and nine months ended September 30, 2023, other revenue increased by $3 million and $10 million, respectively, and other operating expense increased by $1 million and $9 million, respectively, due to an increase in business and related costs that are allocated to the Hilton Grand Vacations pursuant to service arrangements with certain of our hotels.

During the three months ended March 31, 2024, other revenue increased by $1 million and other operating expense increased by $1 million due to an increase in business and related costs that are allocated to the Hilton Grand Vacations pursuant to service arrangements with certain of our hotels.

Corporate general and administrative

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 Percent Change 2023 2022 Percent Change

(in millions) (in millions)

2024 2023 Percent Change

(in millions)

General and administrative expenses $ 13 $ 11 18.2 %

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Other items — 1 (100.0)

— — — 2 3 (33.3)

Total corporate general and administrative $ 17 $ 16 6.3 %

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(1) Consists primarily of disposition costs.

Casualty and impairment loss

During the nine months ended September 30, 2023, we recognized an impairment loss of approximately $202 million.

Impairment and casualty loss

During the three months ended March 31, 2024, we recognized an impairment loss of approximately $5 million related to one of our hotels and our inability to recover the carrying value of the asset.

Refer to Note 7:

"Fair Value Measurements" in our unaudited condensed consolidated financial statements included elsewhere within this Quarterly Report on Form 10-Q for additional information.

In September 2022, Hurricanes Ian and Fiona caused minimal damage and disruption at our hotels in Florida and Puerto Rico, respectively, and we recognized a loss of approximately $2 million for costs to repair and remediate damage at these hotels.

Gain on sales of assets, net

During the nine months ended September 30, 2023, we recognized a net gain of $15 million from the sale of one consolidated hotel.

During the three and nine months ended September 30, 2022, we recognized a net gain of $14 million and $13 million, respectively, primarily as a result of the sales of our consolidated hotels during the respective periods.

Gain on sale of assets, net

During the three months ended March 31, 2023, we recognized a net gain of $15 million from the sale of one consolidated hotel.

Gain on derecognition of assets

During the three months ended March 31, 2024, we recognized a gain of $14 million from the accrued interest expense associated with the default of the SF Mortgage Loan, which resulted in a corresponding increase of the contract asset in our condensed consolidated balance sheets, as we expect to be released from this obligation upon final resolution with the lender.

Non-operating Income and Expenses

Interest income

Interest income increased $5 million and $24 million, respectively, during the three and nine months ended September 30, 2023 compared to the same periods in 2022.

The increase for the three months ended September 30, 2023 was a result of an increase in interest rates, which more than offset a decrease in the average cash balances, and the increase for the nine months ended September 30, 2023 was a result of both an increase in average cash balances and interest rates.

Interest income decreased $5 million during the three months ended March 31, 2024 compared to the same period in 2023 primarily as a result of a decrease in average cash balances.

Interest expense

Interest expense increased for both the three and nine months ended September 30, 2023 compared to the same periods in 2022.

Interest expense increased from accrued default interest in connection with the SF Mortgage Loan beginning in June 2023 and the $50 million of borrowings under our Revolver in December 2022, which was subsequently repaid in February 2023.

This was partially offset by a decrease due to the full repayments in December 2022 of our unsecured delayed draw term loan facility ("2019 Term Facility") and the $26 million mortgage loan secured by the Hilton Checkers, as well as the full repayment of the $75 million mortgage loan secured by the W Chicago - City Center in June 2023.

Interest expense associated with our debt for the three and nine months ended September 30, 2023 and 2022 were as follows:

Interest expense associated with our debt for the three months ended March 31, 2024 and 2023 were as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 Percent Change 2023 2022 Percent Change

(in millions) (in millions)

SF Mortgage Loan (1)

$ 14 $ 8 75.0 % $ 31 $ 23 34.8 %

2024 2023 Percent Change

(in millions)

HHV Mortgage Loan (1)

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Revolver 1 1 —

2019 Term Facility (3)

— 1 (100.0) — 2 (100.0)

2025 Senior Notes (2)

13 13 — 37 37 —

2028 Senior Notes (2)

11 11 — 32 32 —

2029 Senior Notes (2)

9 9 — 27 27 —

Other 2 1 100.0

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(1) In October 2016, we entered into the $725 million SF Mortgage Loan.

In June 2023, we ceased making debt service payments toward the SF Mortgage Loan, and we have received notice of default from the servicer.

(1) In October 2016, we entered into a $1.275 billion CMBS loan secured by the Hilton Hawaiian Village Waikiki Beach Resort (“HHV Mortgage Loan”).

(2) In May and September 2020, Park Intermediate Holdings LLC (our “Operating Company”), PK Domestic Property LLC, an indirect subsidiary of the 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", collectively with the 2025 Senior Notes and 2028 Senior Notes, the "Senior Notes").

Interest expense associated with hotels in receivership

Interest expense on the SF Mortgage Loan increased $6 million due to accrued default interest beginning in June 2023 when we ceased making payments on the loan.

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.

Refer to Note 6:

"Debt" and Note 13:

"Subsequent Events" in our unaudited condensed consolidated financial statements included elsewhere within this Quarterly Report on Form 10-Q for additional information.

(2) In October 2016, we entered into a $1.275 billion CMBS loan secured by the Hilton Hawaiian Village Waikiki Beach Resort (“HHV Mortgage Loan”).

(3) In December 2022, we fully repaid our 2019 Term Facility.

(4) Park Intermediate Holdings LLC (our “Operating Company”), PK Domestic Property LLC, an indirect subsidiary of the Company (“PK Domestic”), and PK Finance Co-Issuer Inc.

(“PK Finance”) in May 2020 issued an aggregate of $650 million of senior notes due 2025 (“2025 Senior Notes”) and in September 2020 issued an aggregate of $725 million of senior notes due 2028 (“2028 Senior Notes”) and in May 2021 issued an aggregate of $750 million of senior notes due 2029 ("2029 Senior Notes", collectively referred to as the "Senior Notes").

Other gain, net

During the nine months ended September 30, 2023, we recognized a gain of approximately $4 million for an early termination fee received from the lessor to terminate the lease for the Embassy Suites Phoenix Airport hotel.

During the nine months ended September 30, 2022, we recognized a gain of $98 million primarily due to the sale of our ownership interests in the joint ventures that own and operate the Hilton San Diego Bayfront.

Refer to Note 3:

"Acquisitions and Dispositions" in our unaudited condensed consolidated financial statements included elsewhere within this Quarterly Report on Form 10-Q for additional information.

Income tax benefit (expense)

During the nine months ended September 30, 2023, we recognized income tax expense of $5 million, primarily related to taxable income from our TRSs.

Liquidity and Capital Resources

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

As of September 30, 2023, we had total cash and cash equivalents of $726 million and $60 million of restricted cash.

As of March 31, 2024, we had total cash and cash equivalents of $378 million and $32 million of restricted cash.

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

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.

During the third quarter of 2023, we continued to experience improvements in overall demand across our portfolio and expect the positive momentum to continue through the remainder of 2023 and into 2024 based on current demand trends and as demand from international travel continues to improve.

During the first quarter of 2024, we continued to experience improvements in overall demand across our portfolio and expect the improvement to continue through 2024 based on current demand trends, including an increase in city-wide events and from international travel.

We continue to mitigate the effects of macroeconomic and inflationary pressures through active asset management.

With approximately $950 million available under our Revolver and $378 million in existing cash and cash equivalents, we have sufficient liquidity to pay our debt maturities and to fund other liquidity obligations over the next 12 months and beyond.

We have no significant maturities in 2023, except for the SF Mortgage Loan due in November 2023, for which we ceased making debt service payments in June 2023 and is in default.

Excluding the SF Mortgage Loan for which we ceased to make debt service payments in June 2023 and is in default, we have no significant maturities until June 2025.

Refer to Note 6:

"Debt" and Note 13:

"Subsequent Events" in our unaudited condensed consolidated financial statements included elsewhere within this Quarterly Report on Form 10-Q for additional information.

"Debt" in our unaudited condensed consolidated financial statements included elsewhere within this Quarterly Report on Form 10-Q for additional information.

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

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

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

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

In addition, our Board of Directors declared a special cash dividend of $0.77 per share, or approximately $162 million, which will be paid in January 2024, refer to Note 13:

"Subsequent Events" in our unaudited condensed consolidated financial statements included elsewhere within this Quarterly Report on Form 10-Q for additional information.

In February 2024, we declared a first quarter dividend of $0.25 per share that was paid on April 15, 2024 to stockholders of record as of March 29, 2024.

In addition, we declared a second quarter dividend of $0.25 per share in April 2024 to be paid on July 15, 2024 to stockholders of record as of June 28, 2024.

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

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

We have construction contract commitments 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.

We have construction contract commitments of approximately $91 million for capital expenditures at our properties.

Our contracts contain clauses that allow us to cancel all or some portion of the work.

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Stock Repurchase Program

In February 2023, our Board of Directors terminated a previous stock repurchase program that was approved in February 2022 (the "February 2022 Stock Repurchase Program") and authorized and approved a new stock repurchase program allowing us to repurchase up to $300 million of our common stock over a two-year period ending in February 2025 (the "February 2023 Stock Repurchase Program" and collectively with the February 2022 Stock Repurchase Program the "Stock Repurchase Programs"), subject to any applicable limitations or restrictions set forth in our credit facility and indentures related to our Senior Notes.

In February 2023, our Board of Directors authorized and approved a stock repurchase program allowing us to repurchase up to $300 million of our common stock over a two-year period ending in February 2025, subject to any applicable limitations or restrictions set forth in our credit facility and indentures related to our Senior Notes.

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

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

During the nine months ended September 30, 2023, we repurchased in aggregate under the Stock Repurchase Programs approximately 14.6 shares of our common stock for a total purchase price of $180 million.

As of September 30, 2023, $150 million remained available for stock repurchases under the February 2023 Stock Repurchase Program.

As of March 31, 2024, $150 million remained available for stock repurchases.

Sources and Uses of Our Cash and Cash Equivalents

The following tables summarize our net cash flows and key metrics related to our liquidity:

Nine Months Ended September 30,

Three Months Ended March 31,

2024 2023 Percent Change

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Operating Activities

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

The $38 million increase in net cash provided by operating activities for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was primarily due to an increase in cash from operations as a result of an increase in occupancy at our hotels, a decrease in cash paid for interest of $20 million, primarily due to the cessation of debt service payments toward the SF Mortgage Loan, and an increase in interest income of $23 million due to an increase in average cash balances and interest rates.

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

The $12 million decrease in net cash provided by operating activities for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily due to a decrease in interest received of $4 million due to a decrease in average cash balances and timing of receipts from our customers and payments to our vendors and other third parties.

Investing Activities

The $91 million in net cash used in investing activities for the nine months ended September 30, 2023 was primarily attributable to $206 million in capital expenditures and land acquisitions, partially offset by $116 million of net proceeds from the sale of one of our hotels.

The $140 million in net cash provided by investing activities for the nine months ended September 30, 2022 was primarily attributable to $244 million of net proceeds from the sale of five of our hotels and our ownership interests in the joint ventures that own and operate one hotel, partially offset by $104 million in capital expenditures.

The $70 million in net cash used in investing activities for the three months ended March 31, 2024 was attributable to $70 million in capital expenditures.

The $49 million in net cash provided by investing activities for the three months ended March 31, 2023 was primarily attributable to $116 million of net proceeds from the sale of one of our hotels partially offset by $65 million in capital expenditures and land acquisitions.

Financing Activities

The $439 million in net cash used in financing activities for the nine months ended September 30, 2023 was primarily attributable to the repurchase of approximately 14.6 million shares of our common stock for approximately $180 million, $132 million of debt repayments and $120 million of dividends paid.

The $242 million in net cash used in financing activities for the nine months ended September 30, 2022 was primarily attributable to the repurchase of approximately 12.0 million shares of our common stock for approximately $218 million.

The $362 million in net cash used in financing activities for the three months ended March 31, 2024 was primarily attributable to $355 million of dividends paid.

The $217 million in net cash used in financing activities for the three months ended March 31, 2023 was primarily attributable to the repurchase of approximately 8.8 million shares of our common stock for approximately $105 million, $56 million of dividends paid and $52 million of debt repayments.

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

Therefore, as a general matter, after consideration of the allowable use of our net operating loss carryforward, we intend to make distributions of all, or substantially all, of our REIT taxable income (including net capital gains) to our stockholders, and, as a result, we will not be required to pay tax on our income.

Consequently, before consideration of the use of any net operating loss carryforward, it is unlikely that we will be able to retain substantial cash balances that could be used to meet our liquidity needs from our annual taxable income.

Therefore, as a general matter, we intend to make distributions of all, or substantially all, of our REIT taxable income (including net capital gains) to our stockholders, and, as a result, we will generally not be required to pay tax on our income.

Consequently, it is unlikely that we will be able to retain substantial cash balances that could be used to meet our liquidity needs from our annual taxable income.

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

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June 28, 2024 July 15, 2024 $ 0.25

September 29, 2023 October 16, 2023 $ 0.15

December 29, 2023 January 16, 2024 $ 0.77

As of September 30, 2023, our total indebtedness was approximately $4.5 billion, including approximately $2.1 billion of our Senior Notes and the $725 million SF Mortgage Loan on which we ceased making debt service payments in June 2023, and excluding approximately $169 million of our share of debt from investments in affiliates.

As of March 31, 2024, our total indebtedness was approximately $3.8 billion, including approximately $2.1 billion of our Senior Notes, and excluding both the $725 million SF Mortgage Loan on which we ceased making debt service payments in June 2023 and approximately $164 million of our share of debt from investments in affiliates.

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

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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 2. Management’s Discussion and Analysis