What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-05 compared with 2024-10-30 · 85 added, 152 removed, 217 unchanged (52% 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 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, 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 elevated inflation and interest rates, potential economic slowdown or a recession and geopolitical conflicts), the effects of competition, the effects of future legislation, executive action or regulations, tariffs, 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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You should not put undue reliance on any forward-looking statements and we urge investors to carefully review the disclosures we make concerning risks and uncertainties in Item 1A:

“Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, as such factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov, as well as risks, uncertainties and other factors discussed in this Quarterly Report on Form 10-Q.

“Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024, as such factors may be updated from time to time in our periodic filings with the Securities and Exchange Commission (“SEC”), which are accessible on the SEC’s website at www.sec.gov, as well as risks, uncertainties and other factors discussed in this Quarterly Report on Form 10-Q.

Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

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

We currently have interests in 41 hotels, consisting of premium-branded hotels and resorts with over 25,000 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 40 hotels, consisting of premium-branded hotels and resorts with approximately 25,000 rooms, of which over 87% are luxury and upper upscale (as defined by Smith Travel Research) and are located in prime U.S.

markets and its territories.

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Refer to Note 9:

"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 elevated interest rates and elevated rates of inflation, may adversely affect our business by affecting consumer sentiment and demand for travel.

However, inflationary concerns have moderated and expectations of further interest rate reductions continue.

In addition, we are experiencing near-term disruption related to negotiations between our third-party operators and unions at certain hotels, which includes strikes and other labor activity and may include increases in labor or other costs to maintain or operate hotels during a labor disruption.

We have relied on the performance of our hotels and active asset management to mitigate the effects of current macroeconomic uncertain ty and disruption from union activity.

During the third 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.

Recent Events

In July 2024, the unconsolidated joint venture that owns and operates the Hilton La Jolla Torrey Pines sold the hotel for gross proceeds of approximately $165 million, and our pro-rata share of the gross proceeds was approximately $41 million, which was reduced by our portion of debt of approximately $17 million.

We recognized a gain of approximately $19 million, which is included in equity in earnings from investments in affiliates in our condensed consolidated statements of operations.

Additionally, in August 2024, we permanently closed the Hilton Oakland Airport and subsequently terminated its ground lease, returning the property to the ground lessor.

During the three months ended September 30, 2024, we repurchased approximately 2.5 million shares of our common stock for a total purchase price of $35 million.

“Business Segment Information” in

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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 elevated interest and inflation rates, may adversely affect our business by affecting consumer sentiment and demand for travel.

Heightened uncertainty due to ongoing changes to trade policy, tax policy and disruptions to government spending has resulted in inflationary concerns and may affect the lodging industry.

During the first quarter of 2025, we have relied on the performance of our hotels and active asset management to mitigate the effects of current macroeconomic uncertainty.

Additionally, we continued to experience improvements in average daily rate (“ADR”), although this 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 are cautiously optimistic for 2025 based on expected improvements in demand trends and expected increases in city-wide events.

Key Business Metrics Used by Management

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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 September 30, 2024 and the Hilton San Francisco Hotels, which were placed into receivership at the end of October 2023.

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, 2025 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 (loss) 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 (loss) income excluding depreciation and amortization, interest income, interest expense, income taxes and also interest income and expense, income tax and depreciation and amortization included in equity in earnings from investments in affiliates.

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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 (loss) 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 (loss) 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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• EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA do not reflect the cash requirements to pay our taxes;

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• EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments;

• 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 (loss) income to Hotel Adjusted EBITDA:

Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

(in millions)

Net income (loss) $ 57 $ 31 $ 153 $ (82)

Net (loss) income $ (57) $ 29

Depreciation and amortization expense 69 65

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Interest expense associated with hotels in receivership (1)

Income tax expense (benefit) 2 — (9) 5

Interest expense, income tax and depreciation and amortization included in equity in earnings from investments in affiliates 4 2 9 7

Income tax expense 1 1

Interest income and expense, income tax and depreciation and amortization included in equity in earnings from investments in affiliates 2 3

EBITDA 80 160

Gain on sales of assets, net (2)

(19) — (19) (15)

Gain on derecognition of assets (1)

(15) — (44) —

Gain on sale of investments in affiliates (3)

Share-based compensation expense 4 4

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(1) For the three and nine months ended September 30, 2024 and 2023, represents accrued interest expense associated with the default of the SF Mortgage Loan, which is offset by a gain on derecognition for the corresponding increase of the contract asset on our condensed consolidated balance sheets beginning October 2023, as we expect to be released from this obligation upon final resolution with the lender.

(2) For the three and nine months ended September 30, 2024, includes a gain of $19 million on the sale of the Hilton La Jolla Torrey Pines included in equity in earnings from investments in affiliates .

(3) Included in other (loss) gain, net.

(4) Includes other revenues and other expenses , non-income taxes on leases with our taxable REIT subsidiaries ("TRSs") included in other property expenses and corporate general and administrative expenses.

(1) For the three months ended March 31, 2025 and 2024, represents accrued interest expense associated with the default of the SF Mortgage Loan, which is 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 leases with our taxable REIT subsidiaries 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 (loss) 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.

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We calculate Nareit FFO per diluted share as our Nareit FFO divided by the number of fully diluted shares outstanding during a given operating period.

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We also present Adjusted FFO attributable to stockholders and Adjusted FFO per diluted share when evaluating our performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing 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:

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

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

Three Months Ended March 31,

(in millions, except per share amounts)

Net income (loss) attributable to stockholders $ 54 $ 27 $ 146 $ (90)

Net (loss) income attributable to stockholders $ (57) $ 28

Depreciation and amortization expense 69 65

Depreciation and amortization expense attributable to noncontrolling interests (1) (1)

Gain on sales of assets, net — — — (15)

Gain on derecognition of assets (1)

(15) — (44) —

Gain on sale of investments in affiliates (2)

Impairment loss 70 5

Equity investment adjustments:

Equity in earnings from investments in affiliates (28) (2) (29) (9)

Pro rata FFO of investments in affiliates 1 1

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(1) For the three and nine months ended September 30, 2024, represents accrued interest expense associated with the default of the SF Mortgage Loan, which is offset by a gain on derecognition for the corresponding increase of the contract asset on our condensed consolidated balance sheets beginning October 2023, as we expect to be released from this obligation upon final resolution with the lender.

For the three and nine months ended September 30, 2023, reflects incremental default interest expense and late payment administrative fees associated with the default of the SF Mortgage Loan beginning in June 2023.

(2) Included in other (loss) gain, net.

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

Results of Operations

Our non-comparable hotels consist of one hotel sold and two hotels returned to the lessor upon termination of the ground leases since January 1, 2023.

Our non-comparable hotels in the table of Hotel Revenues and Operating Expenses below consist of one hotel sold and one hotel returned to the lessor upon termination of the ground lease since January 1, 2024.

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 and nine months ended September 30, 2024, as a result of the hotels being placed into receivership in October 2023, which 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.

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Hotel Revenues and Operating Expenses

Three Months Ended September 30, 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)

Rooms revenue $ 403 $ 432 $ (29) $ 13 $ (40) $ (2)

Food and beverage revenue 157 159 (2) 7 (9) —

Ancillary hotel revenue 68 66 2 5 (3) —

Rooms expense 107 119 (12) 4 (16) —

Food and beverage expense 112 122 (10) 1 (11) —

Other departmental and support expense 154 161 (7) 10 (16) (1)

Other property expense 65 59 6 10 (8) 4

Management fees expense 30 31 (1) 1 (2) —

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

Nine Months Ended September 30, Change from Non-Comparable Hotels

Three Months Ended March 31,

2025 2024 Change Change from Comparable Hotels (1)

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

Change from Non-Comparable Hotels

(in millions)

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(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 and nine months ended September 30, 2024, as well as the change for each segment compared to the same periods in 2023 are as follows:

Three Months Ended September 30, Change from

Non-Comparable Hotels

Group, transient, contract and other rooms revenue for the three months ended March 31, 2025, as well as the change for each type of rooms revenue compared to the same period in 2024 are as follows:

Three Months Ended March 31,

2025 2024 Change Change from Comparable Hotels (1)

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

Change from Non-Comparable Hotels

(in millions)

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

Nine Months Ended September 30, 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)

Group rooms revenue $ 358 $ 368 $ (10) $ 38 $ (47) $ (1)

Transient rooms revenue 742 790 (48) 3 (43) (8)

Contract rooms revenue 68 70 (2) 11 (13) —

Other rooms revenue 25 28 (3) 1 (4) —

Rooms revenue $ 1,193 $ 1,256 $ (63) $ 53 $ (107) $ (9)

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

Market-Specific Conditions

The increases in hotel revenues and operating expenses for our comparable hotels during the three and nine months ended September 30, 2024, as compared to the same periods in 2023, were primarily attributable to our hotels in the Orlando, Key West, Chicago, New Orleans, Boston and New York markets.

Our Orlando hotels both benefited from an increase in group demand after the completion of the ballroom expansion project in early 2024, resulting in increases in occupancy and ADR of 1.4 percentage points and 7.0%, respectively, for the three months ended September 30, 2024 and 3.3 percentage points and 6.9%, respectively, for the nine months ended September 30, 2024 compared to the same periods in 2023 at the Signia by Hilton Orlando Bonnet Creek.

The Waldorf Astoria Orlando benefited from increases in both group and transient demand, resulting in increases in occupancy and ADR of 17.0 percentage points and 6.9%, respectively, for the three months ended September 30, 2024 and 4.9 percentage points and 4.3%, respectively, for the nine months ended September 30, 2024 compared to the same periods in 2023.

The increases in the Key West market were driven by the Casa Marina Key West, Curio Collection, which was closed during the entirety of the third quarter of 2023 for a comprehensive renovation of the hotel that started in May 2023 when the hotel suspended operations, with all rooms reopening by December 2023.

The Hilton Chicago and the Hilton New Orleans Riverside both benefited from increased group demand, with occupancy and ADR at the Hilton Chicago increasing 12.9 percentage points and 0.9%, respectively, for the three months

ended September 30, 2024 and 6.7 percentage points and 0.2%, respectively, for the nine months ended September 30, 2024 compared to the same periods in 2023.

Occupancy and ADR at the Hilton New Orleans Riverside increased 7.9 percentage points and 10.1%, respectively, for the three months ended September 30, 2024 and 3.5 percentage points and 2.3%, respectively, for the nine months ended September 30, 2024 compared to the same periods in 2023.

Combined occupancy and ADR at our Boston hotels increased 1.5 percentage points and 5.2%, respectively, for the three months ended September 30, 2024 and 2.9 percentage points and 4.6%, respectively, for the nine months ended September 30, 2024 compared to the same periods in 2023 due to increases in transient demand.

The New York Hilton Midtown benefited from increases in group and transient demand, resulting in increases in occupancy and ADR of 2.1 percentage points and 1.3%, respectively, for the nine months ended September 30, 2024, while occupancy and ADR remained relatively flat for the three months ended September 30, 2024, compared to the same periods in 2023.

These increases were partially offset by decreases in hotel revenues and operating expenses at our two Hawaii hotels where combined occupancy decreased 5.0 percentage points and 3.1 percentage points for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023 due to a decrease in transient demand.

The changes in hotel revenues and operating expenses for our comparable hotels during the three months ended March 31, 2025 compared to the same period in 2024 were primarily attributable to increases at our hotels in the Orlando, Key West and New Orleans markets, offset by decreases at our hotels in the Hawaii, New York and Boston markets.

Our Orlando hotels continued to benefit from the comprehensive renovation and expansion projects completed in early 2024, increasing food and beverage revenue by 9% for the three months ended March 31, 2025 compared to the same period in 2024.

The Signia by Hilton Orlando Bonnet Creek benefited from an increase in group demand, resulting in increases in occupancy and ADR of 0.4 percentage points and 2.5%, respectively, and the Waldorf Astoria Orlando benefited from an increase in transient demand, resulting in increases in occupancy and ADR of 14.8 percentage points and 5.9%, respectively, for the three months ended March 31, 2025 compared to the same period in 2024.

The increase in the Key West market was a result of the Casa Marina Key West, Curio Collection, which continues to benefit from the hotel’s comprehensive renovation completed in 2023 and an increase in transient demand,

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resulting in increases in occupancy and ADR of 6.8 percentage points and 3.5%, respectively, for the three months ended March 31, 2025 compared to the same period in 2024.

The Hilton New Orleans Riverside benefited from increased group demand driven by the Super Bowl that was held in February 2025, with ADR increasing 14.6% for the three months ended March 31, 2025 compared to the same period in 2024.

These increases were offset by decreases in hotel revenues and operating expenses at our two Hawaii hotels where combined occupancy and ADR decreased 11.8 percentage points and 2.4%, respectively, for the three months ended March 31, 2025 compared to the same period in 2024 due to decreases in group and transient demand partially related to disruption from the renovations at both hotels during the first quarter of 2025.

Additionally, the New York Hilton Midtown experienced a decline in group demand, resulting in a decline in food and beverage revenue of approximately 16% and a decrease in occupancy of 4.2 percentage points for the three months ended March 31, 2025 compared to the same period in 2024.

During the three months ended March 31, 2024, our Boston hotels benefited from a $5 million grant received from a state program and our Hawaii hotels benefited from a state unemployment tax refund of approximately $4 million, both of which reduced operating expenses.

Corporate general and administrative

Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 Percent Change 2024 2023 Percent Change

(in millions) (in millions)

2025 2024 Percent Change

(in millions)

General and administrative expenses $ 13 $ 13 — %

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Impairment and casualty loss

During the nine months ended September 30, 2024, we recognized impairment losses of approximately $12 million related to two of our hotels subject to ground leases and our inability to recover the carrying value of the assets over the remaining lease term.

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.

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

During the three months ended March 31, 2025 and 2024, we recognized impairment losses of approximately $70 million and $5 million, respectively, each relating to one hotel and our inability to recover the carrying value of the assets.

Refer to Note 6:

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

Gain on sale 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.

Gain on derecognition of assets

During the three and nine months ended September 30, 2024, we recognized a gain of $15 million and $44 million, respectively, 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.

During the three months ended March 31, 2025 and 2024, we recognized a gain of $16 million and $14 million, respectively, 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 decreased $3 million and $13 million during the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023 primarily as a result of a decrease in average cash balances.

Interest income decreased $2 million during the three months ended March 31, 2025 compared to the same period in 2024 primarily as a result of a decrease in average cash balances.

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Interest expense

Interest expense increased $3 million and $6 million, respectively during the three and nine months ended September 30, 2024 compared to the same periods in 2023 due to the issuance of the $550 million of senior notes due in 2030 ("2030 Senior Notes") and the $200 million senior unsecured term loan facility due May 2027 ("2024 Term Loan"), partially offset by the repurchase and redemption of all the $650 million senior notes due in 2025 ("2025 Senior Notes").

Interest expense associated with our debt for the three and nine months ended September 30, 2024 and 2023 were as follows:

Interest expense associated with our debt for the three months ended March 31, 2025 and 2024 were as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 Percent Change 2024 2023 Percent Change

(in millions) (in millions)

2025 2024 Percent Change

(in millions)

HHV Mortgage Loan (1)

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2025 Senior Notes (3)

— 13 (100.0) 19 37 (48.6)

2028 Senior Notes (3)

11 11 — 32 32 —

2029 Senior Notes (3)

9 9 — 27 27 —

2030 Senior Notes (3)

10 — 100.0 15 — 100.0

Other 1 — 100.0 6 2 200.0

Total interest expense $ 52 $ 53 (1.9) %

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(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 2020, our Operating Company, PK Domestic, and PK Finance issued an aggregate of $650 million of 2025 Senior Notes, all of which were repurchased or redeemed during the second quarter of 2024.

Our Operating Company, PK Domestic, and PK Finance also issued an aggregate of $725 million of senior notes due 2028 (“2028 Senior Notes”) in September 2020, an aggregate of $750 million of senior notes due 2029 ("2029 Senior Notes") in May 2021 and an aggregate of $550 million of 2030 Senior Notes in May 2024.

(2) In May 2024, the Company, our Operating Company, and PK Domestic Property LLC, an indirect subsidiary of the Company (“PK Domestic”), amended our existing credit agreement to include a new $200 million senior unsecured term loan (“2024 Term Loan”).

(3) In May 2020, Park Intermediate Holdings LLC (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”), all of which were repurchased or redeemed during the second quarter of 2024.

Our Operating Company, PK Domestic, and PK Finance also issued an aggregate of $725 million of senior notes due 2028 (“2028 Senior Notes”) in September 2020, an aggregate of $750 million of senior notes due 2029 (“2029 Senior Notes”) in May 2021 and an aggregate of $550 million of senior notes due 2030 (“2030 Senior Notes”) in May 2024.

Interest expense associated with hotels in receivership

Interest expense on the SF Mortgage Loan increased $1 million and $13 million for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023 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.

Other (loss) gain, net

During the nine months ended September 30, 2024, we recognized a loss of approximately $4 million, which was primarily related to the write-off of the remaining unamortized deferred financing costs associated with the repurchase and redemption of all the 2025 Senior Notes.

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.

Equity in earnings from investments in affiliates

Equity in earnings from investments in affiliates increased $26 million and $20 million for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023 primarily due to a $19 million gain from the sale of the Hilton La Jolla Torrey Pines.

Income tax (expense) benefit

During the three months ended September 30, 2024, we recognized income tax expense of $2 million, which was primarily related to taxable income from our TRSs.

During the nine months ended September 30, 2024, we recognized an income tax benefit of $9 million, which was primarily associated with the effective exit from the Hilton San Francisco Hotels and the reversal of $14 million of tax expense that is no longer expected to be incurred.

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

For the three months ended March 31, 2025 and 2024, interest expense of $16 million and $14 million, respectively, represents accrued interest associated with the default of the SF Mortgage Loan.

Refer to Note 5:

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

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, 2024, we had total cash and cash equivalents of $480 million and $38 million of restricted cash.

As of March 31, 2025, we had total cash and cash equivalents of $233 million and $27 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.

During the third quarter of 2024, we continued to experience improvements in overall demand across our portfolio and expect the improvement to continue through the remainder of 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 $480 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.

Excluding the SF Mortgage Loan for which we ceased to make debt service payments in June 2023 and is in default, and following the issuance of the 2030 Senior Notes and borrowings under the 2024 Term Loan, the proceeds from which collectively were used to repurchase or redeem all of the 2025 Senior Notes and for other general corporate purposes, we have no significant maturities until the fourth quarter of 2026.

With $950 million available under our revolving credit facility (“Revolver”) and $233 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.

Excluding the SF Mortgage Loan for which we ceased to make debt service payments in June 2023 and is in default, and following the issuance of the 2030 Senior Notes and borrowings under the 2024 Term Loan in 2024, the proceeds from which collectively were used to repurchase or redeem all of the 2025 Senior Notes and for other general corporate purposes, we have no significant maturities until the fourth quarter of 2026.

Refer to Note 5:

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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 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.

However, there can be no assurance as to

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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 July 2024, we declared a third quarter dividend of $0.25 per share that was paid on October 15, 2024 to stockholders of record as of September 30, 2024.

In February 2025, we declared a first quarter dividend of $0.25 per share that was paid on April 15, 2025 to stockholders of record as of March 31, 2025.

In addition, we declared a second quarter dividend of $0.25 per share in April 2025 to be paid on July 15, 2025 to stockholders of record as of June 30, 2025.

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 $113 million for capital expenditures at our properties, of which $34 million relates to guestroom renovations at the Hilton Hawaiian Village Waikiki Beach Resort, $19 million relates to guestroom renovations at the Hilton Waikoloa Village and $6 million relates to guestroom renovations at the

Hilton New Orleans Riverside.

We have construction contract commitments of approximately $121 million for capital expenditures at our properties, of which $40 million relates to guestroom renovations at the Hilton Hawaiian Village Waikiki Beach Resort, $30 million relates the transformative renovation at the Royal Palm South Beach Miami, a Tribute Portfolio Hotel, and $13 million relates to guestroom renovations at the Hilton Waikoloa Village.

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 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.

In February 2025, our Board of Directors terminated a previous $300 million stock repurchase program that was approved in February 2023 (the “February 2023 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 2027 (the “February 2025 Stock Repurchase Program”), 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 three and nine months ended September 30, 2024, we repurchased approximately 2.5 million and 4.2 million shares of our common stock for a total purchase price of $35 million and $60 million, respectively.

As of September 30, 2024, $90 million remained available for stock repurchases.

During the three months ended March 31, 2025, we repurchased approximately 1.4 million shares of our common stock under the 2023 Stock Repurchase Program and 2.1 million shares of our common stock under the 2025 Stock Repurchase Program for a total purchase price of $45 million.

As of March 31, 2025, $275 million remained available for stock repurchases under the 2025 Stock Repurchase Program.

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,

2025 2024 Percent Change

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Net cash used in financing activities (189) (362) (47.8)

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Operating Activities

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

The $28 million decrease in net cash provided by operating activities for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was primarily due to an increase of $9 million in cash paid for taxes, a decrease in interest received of $13 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.

The $6 million decrease in net cash provided by operating activities for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 was primarily due to timing of receipts from our customers and payments to our vendors and other third parties.

Investing Activities

The $134 million in net cash used in investing activities for the nine months ended September 30, 2024 was attributable to $164 million of capital expenditures, partially offset by $33 million of distributions from unconsolidated affiliates primarily related to the sale of the Hilton La Jolla Torrey Pines.

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 $77 million and $70 million in net cash used in investing activities for the three months ended March 31, 2025 and 2024, respectively, was attributable to capital expenditures.

Financing Activities

The $447 million in net cash used in financing activities for the nine months ended September 30, 2024 was primarily attributable to the issuance of $550 million of 2030 Senior Notes and the $200 million 2024 Term Loan, offset by $656 million of debt repayments, $459 million of dividends paid and the repurchase of approximately 4.2 million shares of our common stock for $60 million.

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 $189 million in net cash used in financing activities for the three months ended March 31, 2025 was primarily attributable to $131 million of dividends paid and the repurchase of approximately 3.5 million shares of our common stock for $45 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.

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, 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.

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June 30, 2025 July 15, 2025 $ 0.25

September 30, 2024 October 15, 2024 $ 0.25

As of September 30, 2024, our total indebtedness was approximately $3.9 billion, including over $2 billion of our Senior Notes, and excluding both the $725 million SF Mortgage Loan (that we ceased making debt service payments in June 2023) and approximately $157 million of our share of debt from investments in affiliates.

As of March 31, 2025, our total indebtedness was approximately $3.8 billion, including over $2 billion of our Senior Notes, and excluding the $725 million SF Mortgage Loan (that we ceased making debt service payments in June 2023) and 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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GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of our financial statements, the reported amounts of revenues and expenses during the reporting periods and the related disclosures in our unaudited condensed consolidated financial statements and accompanying footnotes.

We have discussed those estimates that we believe are critical and require the use of complex judgment in their application in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission on February 28, 2024.

There have been no material changes to our critical accounting policies or the methods or assumptions we apply.

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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