Park Hotels & Resorts Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of the financial condition and results of operations of Park Hotels & Resorts Inc. (“we,” “us,” “our” or the “Company”) should be read in conjunction with the accompanying unaudited condensed consolidated financial statements, related notes included elsewhere in this Quarterly Report on Form 10-Q, and with our Annual Report on Form 10-K for the year ended December 31, 2024. Forward-Looking Statements 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 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. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect our results of operations, financial condition, cash flows, performance or future achievements or events. All such forward-looking statements are based on current expectations of management and therefore involve estimates and assumptions that are subject to risks, uncertainties and other factors that could cause actual results to differ materially from the results expressed in these forward-looking statements. 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, 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. Overview We have a diverse portfolio of iconic and market-leading hotels and resorts with significant underlying real estate value. 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. 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; as well as hotels in select airport and suburban locations. Our objective is to be the preeminent lodging real estate investment trust (“REIT”), focused on consistently delivering superior, risk-adjusted returns to stockholders through active asset management and a thoughtful external growth strategy while maintaining a strong and flexible balance sheet. As a pure-play real estate company with direct access to capital and independent financial resources, we believe our enhanced ability to implement compelling return on investment initiatives within our portfolio represents a significant embedded growth opportunity. Finally, given our scale and investment expertise, we believe we will be able to successfully execute single-asset and portfolio acquisitions and dispositions to further enhance the value and diversification of our assets throughout the lodging cycle, including potentially taking advantage of the economies of scale that could come from consolidation in the lodging REIT industry. We operate our business through two operating segments, our consolidated hotels and unconsolidated hotels. Our consolidated hotels operating segment is our only reportable segment. Refer to Note 9: “Business Segment Information” in 16 Table of Content s our unaudited condensed consolidated financial statements included elsewhere within this Quarterly Report on Form 10-Q for additional information regarding our operating segments. Outlook 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 Occupancy Occupancy represents the total number of room nights sold divided by the total number of room nights available at a hotel or group of hotels. Occupancy measures the utilization of our hotels’ available capacity. We use occupancy to gauge demand at a specific hotel or group of hotels in a given period. Occupancy levels also help us determine achievable ADR levels as demand for rooms increases or decreases. Average Daily Rate ADR represents rooms revenue divided by total number of room nights sold in a given period. ADR measures average room price attained by a hotel and ADR trends provide useful information concerning the pricing environment and the nature of the customer base of a hotel or group of hotels. ADR is a commonly used performance measure in the hotel industry, and we use ADR to assess pricing levels that we are able to generate by type of customer, as changes in rates have a more pronounced effect on overall revenues and incremental profitability than changes in occupancy, as described above. Revenue per Available Room Revenue per available room (“RevPAR”) represents rooms revenue divided by the total number of room nights available to guests for a given period. We consider RevPAR to be a meaningful indicator of our performance as it provides a metric correlated to two primary and key factors of operations at a hotel or group of hotels: occupancy and ADR. 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, 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. GAAP. 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 (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. 17 Table of Content s 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: • Gains or losses on sales of assets for both consolidated and unconsolidated investments; • Costs associated with hotel acquisitions or dispositions expensed during the period; • Severance expense; • Share-based compensation expense; • Impairment losses and casualty gains or losses; and • Other items that we believe are not representative of our current or future operating performance. Hotel Adjusted EBITDA measures hotel-level results before debt service, depreciation and corporate expenses for our consolidated hotels, which excludes hotels owned by unconsolidated affiliates, and is a key measure of our profitability. We present Hotel Adjusted EBITDA to help us and our investors evaluate the ongoing operating performance of our consolidated hotels. EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA are not recognized terms under 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. GAAP. In addition, our definitions of EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA may not be comparable to similarly titled measures of other companies. We believe that EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA provide useful information to investors about us and our financial condition and results of operations for the following reasons: (i) EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA are among the measures used by our management team to make day-to-day operating decisions and evaluate our operating performance between periods and between REITs by removing the effect of our capital structure (primarily interest expense) and asset base (primarily depreciation and amortization) from our operating results; 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 (loss) income or other methods of analyzing our operating performance and results as reported under U.S. GAAP. Some of these limitations are: • EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA do not reflect our interest expense; • EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA do not reflect our income tax expense; • EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA do not reflect the effect on earnings or changes resulting from matters that we consider not to be indicative of our future operations; and • other companies in our industry may calculate EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA differently, limiting their usefulness as comparative measures. 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. GAAP. 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: • EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs; • EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA do not reflect the cash requirements necessary to service interest or principal payments, on our indebtedness; • EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA do not reflect the cash requirements to pay our taxes; 18 Table of Content s • EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; and • 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 (loss) income to Hotel Adjusted EBITDA: Three Months Ended March 31, 2025 2024 (in millions) Net (loss) income $ (57) $ 29 Depreciation and amortization expense 69 65 Interest income (3) (5) Interest expense 52 53 Interest expense associated with hotels in receivership (1) 16 14 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 derecognition of assets (1) (16) (14) Share-based compensation expense 4 4 Impairment and casualty loss 70 6 Other items 6 6 Adjusted EBITDA 144 162 Less: Adjusted EBITDA from investments in affiliates (8) (8) Add: All other (2) 15 15 Hotel Adjusted EBITDA $ 151 $ 169 _____________________________________ (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 (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. 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. For these reasons, Nareit adopted the FFO metric in order to promote an industry-wide measure of REIT operating performance. We believe Nareit FFO provides useful information to investors regarding our operating performance and can facilitate comparisons of operating performance between periods and between REITs. Our presentation may not be comparable to FFO reported by other REITs that do not define the terms in accordance with the current Nareit definition, or that interpret the current Nareit definition differently than we do. 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. 19 Table of Content s 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. Management historically has made the adjustments detailed below in evaluating our performance and in our annual budget process. We believe that the presentation of Adjusted FFO provides useful supplemental information that is beneficial to an investor’s complete understanding of our operating performance. We adjust Nareit FFO attributable to stockholders for the following items, which may occur in any period, and refer to this measure as Adjusted FFO attributable to stockholders: • Costs associated with hotel acquisitions or dispositions expensed during the period; • Severance expense; • Share-based compensation expense; • Casualty gains or losses; and • Other items that we believe are not representative of our current or future operating performance. 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, 2025 2024 (in millions, except per share amounts) 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 derecognition of assets (1) (16) (14) Impairment loss 70 5 Pro rata FFO of investments in affiliates 1 1 Nareit FFO attributable to stockholders 66 84 Casualty loss — 1 Share-based compensation expense 4 4 Interest expense associated with hotels in receivership (1) 16 14 Other items 6 8 Adjusted FFO attributable to stockholders $ 92 $ 111 Nareit FFO per share – Diluted (2) $ 0.33 $ 0.40 Adjusted FFO per share – Diluted (2) $ 0.46 $ 0.52 _____________________________________ (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) Per share amounts are calculated based on unrounded numbers. Results of Operations 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. 20 Table of Content s Hotel Revenues and Operating Expenses Three Months Ended March 31, 2025 2024 Change Change from Comparable Hotels (1) Change from Non-Comparable Hotels (in millions) Rooms revenue $ 363 $ 374 $ (11) $ (6) $ (5) Food and beverage revenue 182 182 — 2 (2) Ancillary hotel revenue 63 62 1 1 — Rooms expense 100 102 (2) — (2) Food and beverage expense 123 123 — 2 (2) Other departmental and support expense 151 145 6 9 (3) Other property expense 57 52 5 5 — Management fees expense 30 30 — — — _____________________________________ (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, 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 Non-Comparable Hotels (in millions) Group rooms revenue $ 124 $ 123 $ 1 $ 2 $ (1) Transient rooms revenue 214 223 (9) (7) (2) Contract rooms revenue 17 21 (4) (2) (2) Other rooms revenue 8 7 1 1 — Rooms revenue $ 363 $ 374 $ (11) $ (6) $ (5) _____________________________________ (1) Change from our comparable hotels primarily relates to the market-specific conditions discussed below. Market-Specific Conditions 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, 21 Table of Content s 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 March 31, 2025 2024 Percent Change (in millions) General and administrative expenses $ 13 $ 13 — % Share-based compensation expense 4 4 — Other corporate expenses 1 — 100.0 Total corporate general and administrative $ 18 $ 17 5.9 % Impairment and casualty loss 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 derecognition of assets 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 $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. 22 Table of Content s Interest expense Interest expense associated with our debt for the three months ended March 31, 2025 and 2024 were as follows: Three Months Ended March 31, 2025 2024 Percent Change (in millions) HHV Mortgage Loan (1) $ 13 $ 13 — % Other mortgage loans 3 5 (40.0) Revolver 1 1 — 2024 Term Loan (2) 3 — 100.0 2025 Senior Notes (3) — 12 (100.0) 2028 Senior Notes (3) 11 11 — 2029 Senior Notes (3) 9 9 — 2030 Senior Notes (3) 10 — 100.0 Other 2 2 — Total interest expense $ 52 $ 53 (1.9) % _____________________________________ (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 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 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 Overview We seek to maintain sufficient amounts of liquidity with an appropriate balance of cash, debt and equity to provide financial flexibility. 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. 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: “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 be no assurance as to 23 Table of Content s 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 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. Since we generally are unable to decrease these costs significantly or rapidly when demand for our hotels decreases, the resulting decline in our revenues can have a greater adverse effect on our net cash flow, margins and profits. Our long-term liquidity requirements primarily consist of funds necessary to pay for scheduled debt maturities, capital improvements at our hotels, and costs associated with potential acquisitions. 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 $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. Additionally, we have established reserves for capital expenditures (“FF&E reserve”) in accordance with our management and certain debt agreements. Generally, these agreements require that we fund 4% of hotel revenues into an FF&E reserve, unless such amounts have been incurred. Our cash management objectives continue to be to maintain the availability of liquidity, minimize operational costs, make debt payments and fund our capital expenditure programs and future acquisitions. Further, we have an investment policy that is focused on the preservation of capital and maximizing the return on new and existing investments. Stock Repurchase Program 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 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: Three Months Ended March 31, 2025 2024 Percent Change (in millions) Net cash provided by operating activities $ 86 $ 92 (6.5) % Net cash used in investing activities (77) (70) 10.0 Net cash used in financing activities (189) (362) (47.8) 24 Table of Content s Operating Activities Cash flow from operating activities are primarily generated from the operating income generated at our hotels. 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 $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 $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. Dividends 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 REIT 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. We declared the following dividends to holders of our common stock during 2025: Record Date Payment Date Dividend per Share March 31, 2025 April 15, 2025 $ 0.25 June 30, 2025 July 15, 2025 $ 0.25 Debt 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. 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. Critical Accounting Estimates The preparation of our financial statements in accordance with U.S. 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, 2024, filed with the SEC on February 20, 2025. There have been no material changes to our critical accounting policies or the methods or assumptions we apply. 25 Table of Content s