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Park Hotels & Resorts Inc. (PK) Q2 2022 Earnings Call Transcript

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Park Hotels & Resorts Inc. (NYSE: PK)

Q2 2022 Earnings Call

Aug 04, 2022, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Park Hotels & Resorts Inc. second quarter 2022 earnings conference call. [Operator instructions] Please note, this conference is being recorded.I will now turn the conference over to your host, Ian Weissman, senior vice president of corporate strategy. You may begin.

Ian Weissman -- Senior Vice President of Corporate Strategy

Thank you, operator, and welcome, everyone, to the Park Hotels & Resorts second quarter 2022 earnings call. Before we begin, I would like to remind everyone that many of the comments made today are considered forward-looking statements under federal securities laws. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed, and we are not obligated to publicly update or revise these forward-looking statements. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements.

Please refer to the documents filed by Park with the SEC, specifically the most recent reports on Form 10-K and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements. In addition, on today's call, we will discuss certain non-GAAP financial information, such as FFO and adjusted EBITDA. You can find this information together with reconciliations to the most directly comparable GAAP financial measure in yesterday's earnings release as well as in our 8-K filed with the SEC and the supplemental information available on our website at pkhotelsandresorts.com. This morning, Tom Baltimore, our chairman and chief executive officer, will provide a review of Park's second-quarter performance, an outline of Park's strategic priorities and an outlook for the balance of this year.

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Sean Dell'Orto, our chief financial officer, will provide additional color on second-quarter results, an update on our balance sheet and liquidity while establishing guidance for the third quarter. Following our prepared remarks, we will open the call for questions. With that, I would like to turn the call over to Tom.

Tom Baltimore -- Chairman and Chief Executive Officer

Thank you, Ian, and welcome, everyone. I'm very pleased to report stronger-than-expected Q2 performance, with results materially exceeding expectations. We witnessed exceptionally strong performance across our portfolio as the ongoing strength in leisure was augmented by increased business travel, which came in at 95% of 2019 levels and accelerating group demand. On the capital allocation side, we sold approximately $270 million of assets year to date and repurchased $157 million in stock at a significant discount to our internal net asset value estimate during the quarter, further strengthening our balance sheet and creating value for our shareholders.

And finally, based on our strong second-quarter results, we exited the covenant waiver relief period for our credit facilities one quarter earlier than anticipated. Looking closer at our quarterly results. Second-quarter pro forma RevPAR recovered to 90% of 2019 levels and pro forma hotel adjusted EBITDA came in roughly $30 million ahead of our internal expectations set forth at the beginning of the quarter, highlighting the strong recovery in demand following the COVID-related slowdown at the start of the year. Pro forma occupancy improved over 19 percentage points over the first quarter while pro forma average rates finished 8% ahead of second quarter 2019.

The strongest recovery in the quarter was in urban markets where our hotels saw an encouraging increase in demand. Occupancy for our urban hotels averaged 64% for the quarter or a 25% point increase from the first quarter on a pro forma basis and ADR came in 24% ahead of Q1 and slightly ahead of the second quarter of 2019. Note that our last remaining suspended hotel, the Parc 55 San Francisco, reopened on May 19 and quickly exceeded expectations, with June occupancy finishing at 67% with 1,000-plus room hotel. Resort hotel performance remained very strong, growing ADR nearly 27% over the same period in 2019, fueled by our assets in Hawaii, Florida and Southern California.

We were also pleased to see stronger-than-expected group demand for the quarter with group revenues up 68% compared to the first quarter. Group demand remains very short term with pickup for the second quarter representing nearly 44% of the room nights picked up in the quarter for the remainder of 2022. Most of the short-term booking activity was seen in San Francisco and Seattle, while the Hilton Hawaiian Village benefited from positive pickup from better-than-expected citywide participation in May. In terms of business transient demand, we saw a material improvement during the quarter with business transient revenues totaling 95% of second-quarter 2019 revenues.

Park's business-oriented hotels opened for the entirety of the quarter, recorded mid-week occupancies of approximately 73% for the second quarter, a roughly 30 percentage point sequential improvement from the first quarter. As the portfolio recovers, we continue to make progress on our four key strategic initiatives. First, we remain laser-focused on reaping the benefits from a reimagined operating model, capturing margin improvement from both incremental revenue opportunities and operating efficiencies. On the revenue side, we continue to benefit from the industry's remarkable rate discipline and our operators' rate optimization efforts to help offset inflationary cost pressures as occupancy rebounds.

Additionally, our teams continue to focus on driving out-of-room spend, posting impressive results for the second quarter in food and beverage, with revenues exceeding our expectations by over $11 million. At Hilton Hawaiian Village, for example, a reimagined bar concept, an aggressive event and menu pricing helped to generate over $3 million of incremental revenue over the same period in 2019, a 24% increase, split evenly by 12% increases in both average check and covers. On the cost savings side, our operational modifications helped to drive pro forma hotel adjusted EBITDA margins of nearly 31% during the second quarter, were just 30 basis points below 2019 levels despite portfolio RevPAR being down 10%. Most of the savings have come on the labor side with headcount down 23% for managers and 29% for full-time hourly employees compared to 2019 for the quarter within our Hilton managed hotels.

We firmly believe that the operational changes behind many of the staffing reductions are permanent, translating into $85 million in savings or 300 basis points of permanent margin improvement relative to pre-COVID margins on a stabilized basis. Our second key priority is to continue to reshape and improve the quality of the portfolio by remaining active on the capital recycling front. We have made tremendous progress year to date by selling $270 million of assets versus our goal of $200 million to $300 million established at the beginning of the year. Overall, hotel sales were executed at or near 2019 valuations with transaction multiples slightly above 13x on average, versus the 10 times implied multiple on the $218 million of stock buybacks we executed year to date.

And despite recent choppiness in the debt markets, interest in hotel real estate remains high. Accordingly, we expect to sell another $300 million to $400 million of assets to reduce leverage and reinvest back in our portfolio. Our third priority is to fortify our balance sheet by continuing to push our maturities, reduce leverage, bolster liquidity and maintain flexibility as we look to pivot between defense and offense, depending on what the markets dictate. Today, our liquidity position is approaching $1.8 billion with no meaningful maturities over the next 12 months.

We are also in active discussions with our debt capital partners to address our San Francisco CMBS and revolver, both of which mature in late 2023 and expect to have those addressed by year-end. Finally, our fourth priority. We are focused on executing on our robust pipeline of value-enhancing ROI projects that will unlock the embedded value of our portfolio. Work is well underway on our Bonnet Creek meeting space expansion platform with the Waldorf space on schedule to open later this year and the Signia space expected to be ready by early 2024.

And we plan to commence work on two major renovations and repositions within the next 6 to 12 months. Turning to our outlook. It's hard to ignore the headlines around increased macroeconomic uncertainty and possible recession. However, at this point, we have not seen evidence in a pullback in demand across our portfolio.

Corporate balance sheets remained healthy. Consumers still have nearly $1 trillion of personal savings following the pandemic-related economic stimulus and pent-up business and international inbound demand still exists following two and a half years of depressed activity which bodes well for the lodging industry and our portfolio in particular. Lodging demand should also be supported by the $1 trillion infrastructure bill Congress passed last year, a key driver of nonresidential fixed investment, which is forecast to be 5% in 2022. While supply growth in major markets remains historically low within Parks markets, under 1.5% combined and significant barriers to entry from rising construction costs, limiting supply growth over the next three to four years, which we believe will continue to support solid fundamentals over the next several years.

With that backdrop, we are very encouraged with the pace of improvement across our major markets, and we expect to see incremental improvement throughout the year and into 2023 as leisure markets remain strong and the urban and corporate recovery accelerates. Group pace sits at 66% and 72% for the second half of 2022 and full year 2023, respectively, when comparing to 2019 bookings for similar periods as of June 2019 and June 2018, respectively. Urban market convention calendar for 2023 are pacing well when comparing to events booked for 2019 as of 2018, with Chicago, Boston and Washington, D.C., each above 100% and Denver, New Orleans above 80%. San Francisco is currently showing over 760,000 room nights on the 2023 calendar, which is 64% of the actual room nights achieved in 2019.

Hawaii is expected to continue to outperform expectations supported by healthy leisure trends and the eventual return of the Japanese traveler, especially in Honolulu, where historically, Japan makes up nearly 20% of total demand but has been absent over the last three years. Overall, we are bullish about the lodging recovery, and we remain laser-focused on creating shareholder value and closing the valuation gap with our 2022 priorities squarely focused on operational excellence, recycling capital to unlock the significant embedded value in our portfolio and continuing to improve the quality and optionality of our balance sheet to execute on our long-term growth plans. Park remains well positioned for outsized performance, given our optimal mix of resort, urban and group-focused hotels, and I'm incredibly excited about the future. And now I'd like to turn the call over to Sean, who will provide some additional color on operations, along with an update on our balance sheet and guidance for the third quarter.

Sean Dell'Orto

Thanks, Tom. Overall, we are very pleased with our second-quarter performance with results coming in well ahead of expectations, driven by ongoing strength in leisure, coupled with significant gains in both group and business transient. Pro forma RevPAR improved sequentially to $173 as pro forma rate averaged an impressive $244 during the quarter, a 7% sequential improvement over Q1 2022 and 8% above the same period in 2019. Pro forma occupancy improved to 71% for the quarter for a 19 percentage point improvement from Q1 2022.

Looking ahead to the third quarter, preliminary results in July look very strong with hotel occupancy averaging approximately 73% and while average daily rate during the month is projected to be approximately $248 or 12% above 2019. Overall, nearly two-thirds of our consolidated hotels are achieving rates in excess of 2019 rates with the strength witnessed across most leisure markets in addition to Chicago, New York, Denver, Downtown L.A. and several of our airport hotels. Total pro forma operating revenue for the portfolio was $670 million during the second quarter, while pro forma hotel adjusted EBITDA was $207 million, resulting in pro forma hotel adjusted EBITDA margin of 30.8% or just 30 basis points shy of 2019 operating margins.

An impressive result with hotel occupancy still 15 percentage points below 2019 levels. And with one of our largest hotels, the Parc 55 San Francisco, suspended for over half of the quarter. Results were driven by incredibly strong rate gains, coupled with operating efficiencies achieved over the course of the last two-plus years. Turning to the balance sheet.

Our liquidity currently stands at approximately $1.7 billion, including more than $900 million available on our revolver and $758 million of cash on hand while net debt sits at $4 billion, a $200 million decrease from the first quarter. I'm excited to report that Park has exited our credit facility covenant waiver period one quarter ahead of its scheduled expiration. Additionally, given the material improvement in operating fundamentals for our Hilton Hawaiian Village and Hilton Denver hotels, both mortgage loans secured by these two properties are expected to exit their cash traps in early August, freeing approximately $90 million of restricted cash and thereby increasing our total liquidity to $1.8 billion. On the capital return front, we continue to take advantage of the dislocation between public and private pricing and repurchased $157 million of stock during the second quarter, taking our total buybacks to $218 million year to date with just over $80 million remaining on our board-authorized buyback program.

Overall buybacks were executed at material discount to our internal NAV estimate or just 10.3 times 2019 pro forma adjusted EBITDA. Turning to guidance. For Q3, which is traditionally our second weakest quarter of the year, we expect to see a seasonal shift from Q2 with transient revenue mix increasing by 700 basis points, replacing higher rated group production and its higher margin banquet and catering F&B spend. Accordingly, we are establishing Q3 consolidated RevPAR guidance of $171 to $174 or 92% of 2019 levels at the midpoint as the portfolio continues to narrow the gap to 2019 with occupancies to continue to improve in Hawaii, New York, Boston, Denver and Northern California.

Adjusted EBITDA guidance for the third quarter will range between $145 million and $165 million and hotel adjusted EBITDA margins are expected to be between 26% and 27%. Finally, adjusted FFO per share will range between $0.34 and $0.43 for the third quarter. As a reminder, please note that the assets sold year-to-date contributed approximately $5 million to our quarterly earnings. This concludes our prepared remarks.

We will now open the line for Q&A. [Operator instructions] Operator, can we have the first question, please?

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Patrick Scholes with Truist Securities.

Patrick Scholes -- Truist Securities

I'd like to hear your latest observations on the return of the international inbound customer? And related to that, how far off are you from pre-COVID levels for that customer? And then perhaps get a little more granular sort of breaking it down by perhaps, three important markets, the East Coast, New York, West Coast, San Francisco and then certainly Hawaii.

Tom Baltimore -- Chairman and Chief Executive Officer

Patrick, thank you for the question. If we back up for a second, as I think about inbound international into the U.S. was about $79 million in 2019. I believe last year, it had recovered slightly to about $22 million.

We're looking at this year, I believe, from latest reports that I read at about $53 million. I would say across our major markets, we're probably 500 to 750 basis points sort of below sort of '19 levels. So we see that certainly as a tailwind. I think if you look at Hawaii, I think, is a great example.

Our Japanese, which represent, again, 20% of our visitation, they've been down 95%, I believe, plus or minus. They historically have been one of our most loyal customers. They stay longer. They spend more.

We think for Park as we move out and this recovery continues to unfold, that's going to be a real benefit for us. We'll expect Hilton Waikoloa Village to probably be up vis-a-vis '19 at around 4% to 5% in RevPAR compared to many of our peers that are running at certainly much larger numbers than that. But we also expect this year in Hawaii that will probably approach an all-time high or close to our all-time high in EBITDA. So we see tremendous upside there.

As you think about San Francisco, New York, Chicago, all of whom were probably double digit historically, 15% to 18%. We're probably in the high single digits, low double digit across each of those assets. Again, we see that beginning to come back. Obviously, the big gap is really coming out of Asia.

And to the extent that the lockdowns subside and we start to see those areas to begin to open, we see that as real growth potential for us as we move forward.

Operator

Our next question comes from the line of Anthony Powell with Barclays.

Anthony Powell -- Barclays Capital -- Analyst

Question on the asset sales. Obviously, you did well year-to-date selling assets at good valuations. That said, one large sale was to a cash-rich REIT. The other one was to a buyer with a specific multifamily.

So as you look to do the remainder this year, do you expect to see the same, I guess, success at achieving valuations? Or could you see a bit more of a drop in price given the buyer pool is seeing higher rates and more just tougher time getting leverage?

Tom Baltimore -- Chairman and Chief Executive Officer

Yes. It's a great question, Anthony. Look, if you back up and just think about since the spin now, we've sold 36 assets, including 14 international for nearly $2 billion. As you know, many of those were very complicated from Brazil to South Africa to the U.K.

We sold two assets in San Francisco in the middle of the pandemic when there was virtually no visibility. So I would say that our team, Tom Morey and his team on the investment side, continue to work really hard to find the right buyers, no doubt debt costs are rising. No doubt, there's still a tremendous amount of equity on the sideline and interested in hotel real estate. So we're cautiously optimistic that we'll continue to demonstrate strong results.

Whether those come in a little bit, that would not be unreasonable, whether that's 25 or 50 bps on cap rates and given where debt spreads are. But we do expect that the debt market will hopefully begin to loosen up and open up a little more here in the third, fourth quarter and certainly into next year. We're not a panic seller. We'll be thoughtful.

We'll continue to work hard as we've demonstrated, but we are laser-focused on selling another $300 million to $400 million in assets, again, using those proceeds to pay down debt, reinvest back into the portfolio, continuing to build liquidity and make sure the balance sheet is in strong shape so that we have the optionality to pivot between defense and offense, as we said in our prepared remarks.

Anthony Powell -- Barclays Capital -- Analyst

And maybe one more in terms of the guidance. I understand the EBITDA impact of the mix shift in the third quarter, focusing more on the RevPAR growth guidance. It seems like you expect to see RevPAR growth decelerate in August, September. We're hearing some good stuff from around Labor Day bookings from others.

So I'm just curious what you're seeing in those months regarding RevPAR growth.

Tom Baltimore -- Chairman and Chief Executive Officer

Yes. I'll let Sean take the latter part of the question. Anthony, thank you for the question. We sense that many listeners have some concern or comments regarding that.

I think it's important to note that if you think about our portfolio, second quarter and fourth quarter are traditionally the two strongest quarters within this portfolio, the first and third quarters being the softer. Third quarter is traditionally one of the softer group periods. That is holding true in this year as well. And so we're down about 700 basis points in a shift to transient versus group.

We make up for a lot of that in the fourth quarter. One example of that is if you think about -- we've got about 620,000 room nights in the back half of the year in New Orleans. We're down about 27% in the third quarter and we're up about 40% in the fourth quarter. So it really is a seasonality and a timing issue.

And so we're -- we thought it was appropriate to be conservative but also recognizing the historical trends within this portfolio. We are not seeing any softening as we said during our prepared remarks and are still very bullish on the lodging sector. But we certainly wanted to be careful as we provided third quarter guidance. And I'll turn it over to Sean to address your other questions.

Sean Dell'Orto

Yes. Just picking up what Tom said, just being careful with the group base that we have into Q3, and we're certainly seeing good in the quarter for the quarter pickup through Q2, just kind of with the way that the business projects out or ultimately runs through the summer times are really not going to count so much on the group -- in the quarter for the quarter pickup. But certainly, September has opportunity. There is a little bit of a typical kind of thoughts around holidays with Labor Day being a little later in the first week of September, and we have the Jewish holidays in the back half as you compare of '19.

But in the end, I think certainly, there's some good potential of picking back up where we saw some of that business level demand in May and June. So we certainly think that September picks up well. So I think certainly, I think September has an opportunity to outperform July right now, it's probably on level with July and August is a little softer in the middle of the quarter.

Operator

Our next question comes from the line of Floris Van Dijkum with Compass Point.

Floris Van Dijkum -- Compass Point -- Analyst

Obviously, it appears that you're still about 19% short of your peak occupancy for the quarter relative to '19. Maybe touch upon the Hawaii in some more detail? And how much more growth we can expect in the second half of that year? Is that going to be more fourth quarter ramp? And then also, what your prospects look for next year for Hawaii in particular?

Sean Dell'Orto

Hawaii is going to be -- I mean, it's been incredible. Certainly, through Q2 and into the latter parts of Q2 and certainly in Q3, we see continued build of Hawaii and on the occupancy level going from across both hotels increasing 200 basis points. So certainly, very pleased to see how that continues to stay strong. It's certainly going to -- I think certainly be a big plus for us on the rate side as it continues to improve its rate relative to '19, growing to kind of high single digits to low double digits through the course of the next several months.

We certainly think, as Tom talked about, international demand. And as we kind of quoted some of the things we've seen recently, I mean, Japan as one of our major source markets traditionally is still only -- it's only at 12% of '19 levels. So we just think as those consumers come back into Hawaii, it's just going to be an incredible tailwind for us going forward. We've been able to achieve pretty much '19 levels of profitability or approaching that.

Again, with some of the margin efforts we've done, RevPAR recovering just on domestic -- pretty much domestic business alone or certainly not -- without the Japanese business. So I think certainly Hawaii certainly expect to be a big tailwind for us going into next year.

Floris Van Dijkum -- Compass Point -- Analyst

And maybe my follow-up in terms of buybacks, presumably, you'll look for additional asset sales before you start to buy back some more stock down the road?

Tom Baltimore -- Chairman and Chief Executive Officer

Yes. Floris, we've made it clear, obviously, that the highest and best use for us from a capital allocation standpoint would be investing back into this portfolio, either through ROI projects or buying back stock. We have a current authorization up to $300 million. As we said earlier, we will focus on the $300 million to $400 million of additional asset sales to reduce leverage.

So we make sure we have that optionality. We'll continue to watch market conditions carefully. And to the extent that the dislocation continues, best assured all options are on the table, including that buyback as well. But we -- really, in the near term, we'll be focused on selling those noncore, taking those proceeds, paying down debt and obviously addressing the revolver and then the San Francisco CMBS that Sean mentioned during his remarks.

Operator

Our next question comes from the line of Chris Woronka with Deutsche Bank.

Chris Woronka -- Deutsche Bank -- Analyst

So maybe we can drill down a little bit on group. I think you gave out data points 66%, 72% for second half and for '23. And I know you mentioned a lot of in the quarter, for the quarter pickup, which is encouraging. But the question is, Tom, are you may be surprised that's not a little bit higher even because you've had people not meet for two years.

And also, are you seeing any difference in the size of the groups? Are the associations pushing back on higher rates or anything like that?

Tom Baltimore -- Chairman and Chief Executive Officer

Yes. It's a great question. Obviously, as we look out to next year, what we are seeing is that the booking windows are certainly shorter. We saw that in the second quarter where we had, obviously, 76%, I believe, of '19 levels.

And we look at next year at 72%, we see kind of the same trends that first and second quarter out of the box are pretty strong. I think second quarter is up around 86%. No doubt as companies continue to get back in to return to office as we get, I think, more visibility on the economic climate. No doubt, we expect that to continue to accelerate even in markets like San Francisco, where you're seeing increases in citywides.

So citywides in Chicago are growing, Orlando growing, citywides obviously, in San Francisco growing. Boston and D.C. is certainly growing. So all of that will certainly help.

But really getting those big companies where they have a lot of what we call self-contained, we're certainly seeing some of that through the association, but we expect through the corporate side for that to continue to accelerate, Chris, as we look forward.

Chris Woronka -- Deutsche Bank -- Analyst

OK. That's helpful. And then just on capital allocation, right? On paper, the buybacks make a lot of sense. You've sold assets accretively, market doesn't seem to always reward that, unfortunately.

What's the -- is something that's on the table selling a super tanker asset? Because most of those assets you've sold have been fairly small. You sell a super tanker for a really strong multiple. Is that on the table, do you think that can help? Does it even make sense given where your level of EBITDA you're at currently?

Tom Baltimore -- Chairman and Chief Executive Officer

Yes. Chris, it another fair question. Certainly, all options are on the table. Keep in mind, they have a low tax basis.

Getting debt for one of those big deals is a little more complicated than some of the asset sales that we're trying to do. But rest assured, as we've said, we are open to all options. We are looking at many. We are going to close this valuation gap.

We are laser-focused on it. But we also don't think it's prudent to be selling assets like that really at the bottom of the market. So you got to be careful and thoughtful about that. And I think you've seen.

Look at, again, the San Francisco asset sales that we did in the middle of the pandemic, very attractive pricing. Look at the asset sales that we've done. All have been accretive, almost all, if not all, accretive. We still have that as a theme as well and certainly a guiding principle.

But we certainly want to be allocating capital and rightsizing the portfolio over time, so that we can certainly get a presence in some of the other growth markets as well. But we certainly believe that the urban play has legs as we move forward, and then we're going to begin to see the tailwind, and we're seeing evidence of that already.

Operator

Our next question comes from the line of Dori Kesten with Wells Fargo.

Dori Kesten -- Wells Fargo Securities -- Analyst

Can you talk about the various options on the table to address your '22 and '23 maturities?

Sean Dell'Orto

Sure. So on the '22, there's really nothing we view as meaningful. So there's a couple of small mortgages that are out there that we'll look to address with cash on hand. As we've noted, we've got 1.8 -- approaching $1.8 billion of liquidity.

Half of that is with the cash. So we'll just look to take those out as they mature over the next 12 months. On the bigger ones, certainly that kind of toward the end of the year, we're exploring a few different options. One, obviously, we have time to do that.

We'll be addressing our revolver and certainly we're in good standing with our banks. We have great relations with them, long-standing relationships with them, been already kind of having conversations and thinking to the timing of it. And so we're confident we'll work through that and get that recast and keep that liquidity intact. And then ultimately, we'll look to address San Francisco, again, weighing our options on that.

We have unencumbered assets, including big-sized, large-sized assets. And so we've looked to kind of utilize that potentially as a mortgage on those, along with some of the cash on hand to take out CMBS. And obviously, we have access to the high-yield markets, which we've demonstrated in the past as well. So we'll look to opportunistically find the best option for us over the next few months and proceed accordingly.

Operator

Our next question comes from the line of Neil Malkin with Capital One.

Neil Malkin -- Capital One Securities -- Analyst

Just following up on Dori's question. The assets or collateralizing that CMBS in late '23, the Parc 55 and the Union Square. Obviously, two of your biggest hotels, both, I think -- at least the Parc 55, I believe, needs a fair amount of capex. Just curious at all, you mentioned the disconnect between public and private valuations.

If asset sales around for assets like that. In San Francisco, obviously, a market that has a lot of issues, trying to resolve those will probably take a few years and maybe could help you expedite a deleveraging or a larger buyback or a reallocation to I guess, more in favor higher growth markets, obviously, again, overlaying that on a more difficult refinancing you're facing.

Tom Baltimore -- Chairman and Chief Executive Officer

I heard the commentary, Neil. Is the question selling it? I want to make sure I understand your question before -- so I respond appropriately. Yes.

Neil Malkin -- Capital One Securities -- Analyst

Sorry. Yes, it would just be with all the -- yes, it's a tougher environment for refinancing, if you can just mention that. And some of the assets that are collateralizing that need a fair amount of capex. So could selling be an option? Or do you plan to do that?

Tom Baltimore -- Chairman and Chief Executive Officer

Look, as we've said many times, all options are on the table. We certainly are prepared to, whether it's sell some of the larger assets or joint venture. Keep in mind, those two assets are crossed that, as Sean mentioned, that CMBS matures at the end of 2023. We are not at all panicked.

Again, think back to the worst of the pandemic when we had a number of maturities. We did 3 bond deals. We pushed out maturities. We've paid back 97% of the bank debt.

Everyone earned fees and could not have I think been happier with Park given how we executed in the worst of times. So we've got $1.8 billion. We have a lot of optionality. We could, yes, in theory, sell one or both assets.

Again, getting debt right now in the near term, given that the debt markets are very choppy would be a very difficult execution in three to six months. There are a number of options that we think are available. We certainly believe and have said publicly, and we're seeing evidence that San Francisco, albeit lagging, certainly is coming back. And we'll watch carefully as to what we think the trajectory is for that market.

Neil Malkin -- Capital One Securities -- Analyst

OK. The commentary and then the other one is, I think you mentioned that business traveler our business was like 90 plus percent of 2019. And then it seems group has a bit a bit more to go, although obviously favorable booking trends, etc. But a larger peer who recently reported.

It kind of made it seem like group is going to probably recover ahead of BT. Just curious on your view there. Obviously, I understand the portfolios are the same, but both group focused. Do you expect BT to actually lag the recovery in group? And obviously, do you think that maybe some group will, on the corporate side, wind up becoming a new segment as the work from home dynamic persists and people use hotels as a way to convene groups and report, etc.?

Tom Baltimore -- Chairman and Chief Executive Officer

Listen, it's a complicated question. Obviously, it's hard to compare across portfolios because people have got different portfolios in terms of their distribution, product size. No doubt that we believe that group is going to continue to accelerate and that companies, given the fact that people are working remotely or hybrid, will have a need to get people together more frequently. We hear it from C-suite leaders all the time that now with people being spread around, the need to bring people together for training, for celebration, for cultural activities, smaller groups, larger groups.

So we certainly agree with that thesis. And we think Park is going to be very well positioned for that. The issue is, how and when does that begin to accelerate. We see evidence of that in some small groups.

But I think as you get the bigger companies, as we get through and get more visibility on the economic side, we certainly think that's going to accelerate. I think the same thing applies on the business transient. And I was talking with a C-suite leader a couple of months ago who now is working remotely in Florida. He's now having to make, he said 25 trips back to New York for the home office that he didn't have to make historically.

I see that as, again, incremental business transient. So I think both are going to continue to be strong. And in this concept of leisure travel that we talk about, where people start out traveling in part for business and may get elongated and stay -- take an extra day or two for personal reasons. I found myself doing that.

And I think you'll see that segment to continue to grow as well. So I think the good news for the overall industry is that demand is going to continue to be really healthy as we move forward. I think you also have a backdrop that supply is going to be muted. It's hard to imagine that you're going to see continued development given what's happening with inflation, rising material cost.

And particularly when you think about our portfolio in some of the markets that we're in, we've got one of the lowest impact of supply across the sector. And we think that's going to benefit us and provide pricing power and a benefit for us as we move forward.

Operator

Our next question comes from the line of Duane Pfennigwerth with Evercore ISI.

Duane Pfennigwerth -- Evercore ISI -- Analyst

Not sure if you can appreciate -- so not sure if you can generalize to a market level. But where do you think you realize a relative RevPAR premium? And what markets do you see the biggest opportunity versus peers?

Tom Baltimore -- Chairman and Chief Executive Officer

The first question, I'll let Sean ponder that for a minute and come back. In terms of -- I guess I'd answer it this way. When you think about Park and the case for Park, if you will, I would say it's both an urban and a group recovery play. As you think about the markets that we've been in and candidly, I think many thought that both urban and group would not -- some didn't think they'd recover at all, and some thought it would be '25, '26.

I think we can see, based on what we saw just in -- from first quarter to second quarter with the urban occupancy growing 25%, ADR growing 24%, group revenues growing 68%. Those are going to continue to accelerate. So I think that across our broad portfolio, we see that as a tailwind. I think on the international demand, given the fact that we are anchored in many of the urban city centers and international is coming back.

As I said, it was $79 million inbound in '19, $22 million, I think, last year, approaching $50 million, $53 million this year. We see that continuing as the world begins to get beyond COVID as we move to the endemic phase. So we see that as a tailwind. Hilton Hawaiian Village.

We see that as just a huge -- many of our peers have seen parabolic and significant growth on the leisure side. We haven't seen it there. Again, we're still going to approach profitability close to an all-time high, and we don't have 20% of our visitors that historically have been coming for north of 30 years consistently, and they haven't been there for nearly three years. So we see that as, again, a huge tailwind for us as we look out into '23, '24 and beyond.

But I just, name it three, hopefully, that answers your question from that concept, and I'll let Sean pick up on the part A of your question.

Sean Dell'Orto

Yes. And it is tough to kind of get in through. I mean it's a market, but it's also the kind of asset, as you imagine, too. So some of the larger hotels we have in there, it's maybe not so much more of a RevPAR premium exercise, but a total RevPAR exercise where you're obviously looking to drive the ancillary spend and then sort of -- be spend everything else with the group activity in some of those.

So case in point, talk about our Bonnet Creek asset, where we were expanding the meeting space and looking to capture a lot of ancillary revenue through that investment. And as well, looking at Key West, for example, certainly, there's a lot of good competitive assets in that market. We have a kind of a good little group base that we have for hotels and casas. We've made the conversions from Waldorf to Curio, to ultimately think we can still drive the same types of RevPARs and rates at those assets, but ultimately have a leaner operating model to drive more profitability.

So it's kind of a complicated answer to think about just the focus on RevPAR, where you think there's a total RevPAR story and as well as a profitability story.

Duane Pfennigwerth -- Evercore ISI -- Analyst

That's helpful. And then just for my follow-up, when conditions support pivoting to offense, what would that look like? What shape would that take?

Tom Baltimore -- Chairman and Chief Executive Officer

It's single assets, it's portfolios, it's upper upscale and luxury in top 25 markets and premium resort destinations. And clearly, in the Southwest, whether it's Phoenix, parts of Texas, Southeast into Florida, clearly into Nashville. And I think that -- I think there's a lot of supply and the pricing is getting a little lofty but clearly continuing to balance out the portfolio is certainly something that you'll see us execute over time.

Operator

Our next question comes from the line of Robin Farley with UBS.

Robin Farley -- UBS -- Analyst

I just wanted to return to the RevPAR guidance for Q3. Just to ask a little bit about -- I understand your comments kind of sequentially from Q2 to Q3. When we look comparing the periods to 2019, so that would kind of take out the seasonality, just looking at the rate of recovery in June. Given what you said about group mix being lower in Q3, it feels like with the strength in resort and leisure rates, wouldn't that actually allow Q3 to show better recovery relative to 2019? Because it's more of a leisure transient quarter than a group quarter, so that the outperforming segment right now would -- I guess I'm just trying to understand why you're calling for the quarter to not be as strong as what you've seen in June and July.

Are you just being conservative? Or is there -- or in fact, are the comps getting tougher and rate sensitivity returning to the leisure traveler?

Sean Dell'Orto

Thanks, Robin. Ultimately, one thing I'd say is, in our guidance, our top line guide of RevPAR. We are ultimately showing improvement and narrowing the gap to 2019 levels. We ultimately finished the second quarter at 10% down.

We're guiding to be improving upon that by a couple of hundred basis points or so. So I think we are...

Robin Farley -- UBS -- Analyst

I just meant relative to the June and July, right? Sorry, just to be -- like the June, July being down about 4%, both of those months just in terms of -- from there sequentially.

Sean Dell'Orto

Yes. And ultimately, again, I think that's where kind of the -- while you have August, which is that mixed thing where you don't really have a ton of business travel per se through that month. You also have leisure kind of falling back because people are obviously going back to -- well, kids are going back to school, you were coming off a vacation kind of midway through that -- through the month. So I think ultimately, you have a little bit of a depression in a way in August, relative to kind of a QT with June and July stuff a month.

Obviously, we think we picked back up in September, to kind of equate to where June/July were and more driven by business. The business travel are coming back on transient and group ultimately, we think could have some in the quarter for the quarter, buildup and opportunity. And we do think, yes, we certainly are taking a little bit of a conservative approach to this as we think about kind of, again, in the quarter for the quarter build won't necessarily be like it was in Q2, as well as some of the holiday impact as we think about people trying to come off of vacations and travel again in September.

Robin Farley -- UBS -- Analyst

And so it does sound like you're being conservative, but I'm also just curious what your thought is on the leisure traveler being more price sensitive? Just given another hotel company today talked about July RevPAR being down year over year, still up versus '19, but actually down year over year. So I'm just curious if you are sensing that sort of return to what -- typically, the leisure traveler is more rate sensitive historically. It doesn't seem like they have been lately, but do you feel like that's changing or not, maybe?

Sean Dell'Orto

I mean, I think one thing to also recognize, people didn't have a lot of options travel last year. So they're going to market, certainly tourism wouldn't get a lot of that demand. So you think about Southeast Florida, even to some level in kind of New Orleans, other places where you have hurricane season. So I think you've seen -- and then obviously, a lot of heat.

So I think you've seen a lot of people have maybe alternatives this year to go elsewhere. And so you have a little bit of the pressure on demand in some of those markets. So from a year over year, which obviously was very elevated. So I think they remain very strong relative to '19 and ultimately, but from a year-to-year comparison, where people didn't have a lot of options to go, I think you see a little bit of moderation.

Operator

Our next question comes from the line of Chris Darling with Green Street.

Chris Darling -- Green Street Advisors -- Analyst

Going back to the Hilton Hawaiian Village for a second. Can you touch on the second-quarter margin print. Maybe give some detail as to what's driving that result? And then looking forward, what's your expectation on margin for that property?

Sean Dell'Orto

Yes. The Hilton Hawaiian Village had kind of an accrual there as we worked through labor negotiations there. And so ultimately, there was accruals that were ultimately released that benefited the margins this quarter. Going forward, certainly, I think it was a very good story for Hilton Hawaiian Village, especially as we look at it.

Because certainly, that's one where we've seen the RevPAR levels achieve along -- pretty much in line with '19 levels and without too much variation between very elevated ADR and a very low OTA, they've somewhat been somewhat caught up in both respects. It's kind of been a good proxy for us to look at some of our labor initiatives and ultimately, that we've talked about the $85 million. And so when we look at Hawaiian Village and look at some of the margin improvement there, again, thinking it's pretty much on par with '19 levels on the top line. We're looking at kind of adjusted for what I just discussed for Q2, somewhere in the 200, 250 basis point range relative to '19.

And that's without -- that was about half of the room nights booked for group relative to '19. So we're missing out on some of that higher margin banquet and catering business as we compare to '19. So I think there's certainly some better margin improvement beyond the $200 million, $250 million I mentioned.

Tom Baltimore -- Chairman and Chief Executive Officer

Chris, the other thing I'd add to what Sean said is we have been crystal clear that we are laser focused on reimagining the operating model and taking out $85 million in cost across the entire portfolio, it's about 1,200 FTEs. More than half of that are management, admin, etc. And I think Hilton Hawaiian Village is a great example to what Sean was talking about. I think we've been able to reduce some of the management and additional admin there, 20%, 25%.

So that's also another example of really the good work between our asset management team and our operators to continue to think about the business differently. And we fully expect that that's going to continue. Although, as Sean said, we did have the onetime benefit, but Hilton Hawaiian Village is just going to continue to be an outperformer for us in '22 and beyond.

Chris Darling -- Green Street Advisors -- Analyst

Got it. sense. And then a little bit higher level, when you just step back and think about some of the challenges that the airlines have been facing around flight capacity, do you see this as a risk at all to the recovery of occupancy in your portfolio? Or has that not necessarily had much of an impact?

Tom Baltimore -- Chairman and Chief Executive Officer

It hasn't had much of an impact today. I mean I think when you think about Heathrow and them deciding to have little or no traffic or not taking bookings for two weeks. I mean, these are things unimaginable as we think about it historically. We live in an unprecedented times right now.

I have to believe that those talented leadership teams will rightsize their businesses and get it sorted out. There's just so many other variables to work through right now. But we are seeing probably more in the U.S., people are probably doing a lot of drive to, to help compensate and ease their own travel frustration. Clearly, as you think about what's happening in Hawaii and other businesses, we have to take an airlift.

We're seeing no shortage there. There's plenty of capacity. And those are desired -- certainly, destinations. As Sean pointed out, a lot of people didn't have a lot of options.

Some options are opening up. But despite that and despite the fact that even in Hawaii, where we don't have the anchor customer and the Japanese, we're getting plenty of visitation throughout the U.S. and other parts of the world.

Sean Dell'Orto

I might add on the margin, we're certainly seeing benefit in our airport properties as that dislocation happened. Seattle Airport, Boston Logan, Hilton has certainly seen some pickup, obviously, from fuel being, unfortunately, dislocated or stranded. And on top of that, I'd say anecdotally, as I talk to people who are -- typically would come in for the day to meet are flying the night before to ensure that they're going to get there. So we're seeing a little bit of benefit of that to people just kind of be a little more cautious and actually staying a night versus doing a day trip.

Operator

Our next question comes from the line of Jay Kornreich with SMBC.

Jay Kornreich -- SMBC Nikko Securities -- Analyst

I would be curious to get your thoughts as business transient obviously, as you know, still remains significantly below 2019 levels of accelerating. How do you see that delta in occupancy to 2019 providing a buffer in the event there is a mild recession and BT demand possibly holding up better than it historically has in a recession? Do you think that? And maybe on the flip side, whereas leisure demand is only operating at peak levels, how would you see that potentially faring an amount of recession?

Tom Baltimore -- Chairman and Chief Executive Officer

It's a great question. I mean, obviously, anecdotally, we would believe that business transient would continue to withstand because the recovery is still underway. There's still a lot of pent-up demand of business leaders. Men and women need to get out and send their teams out to certainly connect with customers and peers.

So we would expect that in theory, if there's some sort of pullback, that there really would be less of an impact given where we are in that cycle.

Jay Kornreich -- SMBC Nikko Securities -- Analyst

And while I understand that's sure for business transient, do you think there's a different impact on leisure demand, that it doesn't maybe have that buffer of occupancy gap?

Tom Baltimore -- Chairman and Chief Executive Officer

Yes. I mean, everybody -- trees don't grow to the sky. I mean, we're all benefiting from certainly elevated travel on the leisure side. A lot of that because of the pent-up demand.

And -- but I think you can make a case for this concept of leisure travel with people working remotely or hybrid. And I think that a stronger leisure footprint, I think we can make a case that it has legs. Now does it have legs at 50% growth in RevPAR every year? I don't think that's achievable, and we are getting some of that benefit. But I certainly think those demand patterns are perhaps going to be altered as we fully come out of this pandemic and move forward.

Jay Kornreich -- SMBC Nikko Securities -- Analyst

Got it. And then just one more on the covenant waiver which you've now exited, i.e. exiting, what kind of flexibility does that provide you? Or what opportunities open up by not being subjugated to any more, maybe on the external growth side or internally? What does that do for you?

Sean Dell'Orto

Quite honestly, we put a lot of flexibility into the recovery and relief with lots of buckets for acquisition activity and everything else. So I would say, quite honestly, it doesn't really free up or it doesn't make huge amounts of flexibility for us. I think it kind of existed already within the recovery early period, thanks to the banks for being flexible for us. So I think it's kind of business as usual.

And ultimately, we still have flexibility under elevated leverage targets as those ramp down over time, and interest coverage. We certainly still have a little bit of cushion there to kind of build the portfolio back. But I don't think there's anything that we see as dramatic just because we booked in a lot of flexibility during the late period.

Operator

And our next question comes from the line of David Katz with Jefferies.

David Katz -- Jefferies -- Analyst

There's been a lot of discussion about asset sales in the $300 million to $400 million. Can you just give us a little more depth or color around your sensitivity or philosophy of kind of balancing valuation in the moment with the productivity that we've all discussed around getting some things sold. And sort of I guess I'm trying to gauge your aggressiveness or assertiveness meter.

Tom Baltimore -- Chairman and Chief Executive Officer

I guess the first way I would answer it, David, I don't know that anybody has been more active over the last three, four years than we have. We've sold 36 assets for $2 billion, joint ventures, 14 international, half of them incredibly complicated with a lot of hair, from Brazil, Germany, U.K., Dublin, South Africa, the Netherlands to our joint venture with Sunstone. So -- to some small assets that we were self-operating. So we have constantly been working hard to reshape this portfolio and continue to improve the quality of it.

That effort isn't going to continue. We're going to accelerate it. We don't, again, see the need to panic. We don't see yet fire sale.

We want to get the best price, and we certainly want them to be accretive for shareholders, as I think we've demonstrated. Could there be a situation where depending on where the debt markets are and an asset that's noncore that we want to -- do I think cap rates have compressed a little bit or widen in this environment? Probably. But we're -- again, there's so much liquidity. There are, I think, $370 billion just on the private equity side, and there are 25 companies with over $1 billion.

So they've got to put that money to work. And so our objective is to find the right buyer for the assets that we're selling. But make no mistake, we are laser-focused on deleveraging, reinvesting back in the portfolio and closing this valuation gap. And that effort is only going to accelerate.

Operator

And we have reached the end of the question-and-answer session. I'll now turn the call over to Tom Baltimore for closing remarks.

Tom Baltimore -- Chairman and Chief Executive Officer

Great to be with you today. I hope everybody has a great remainder of the summer and I'll look forward to seeing you in the coming weeks and months.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Ian Weissman -- Senior Vice President of Corporate Strategy

Tom Baltimore -- Chairman and Chief Executive Officer

Sean Dell'Orto

Patrick Scholes -- Truist Securities

Anthony Powell -- Barclays Capital -- Analyst

Floris Van Dijkum -- Compass Point -- Analyst

Chris Woronka -- Deutsche Bank -- Analyst

Dori Kesten -- Wells Fargo Securities -- Analyst

Neil Malkin -- Capital One Securities -- Analyst

Duane Pfennigwerth -- Evercore ISI -- Analyst

Robin Farley -- UBS -- Analyst

Chris Darling -- Green Street Advisors -- Analyst

Jay Kornreich -- SMBC Nikko Securities -- Analyst

David Katz -- Jefferies -- Analyst

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