Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Park Hotels & Resorts Inc. (NYSE:PK)
Q1 2021 Earnings Call
May 07, 2021, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Greetings. Welcome to Park Hotels & Resorts, Inc. first-quarter 2021 earnings conference call. [Operator instructions] Please note that 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 and Investor Relations

Thank you, operator, and welcome, everyone, to the Park Hotels & Resorts first-quarter 2021 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. In addition, on today's call, we may discuss certain non-GAAP financial information, such as adjusted EBITDA.

You can find this information together with reconciliations to the most directly comparable GAAP financial measure in last night's earnings release, as well as in our 8-K filed with the SEC and the supplemental financial information available on our website at pkhotelsandresorts.com. This morning, Tom Baltimore, our chairman and chief executive officer, will provide an overview of the industry, as well as a review of Park's first-quarter performance. He will also provide color on recent demand trends and their impact on Park's portfolio. Sean Dell'Orto, our chief financial officer, will provide a brief review of performance across several of our key markets, as well as more detail on our balance sheet and liquidity.

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 hope that everyone is safe, healthy and well as we surpass one full year of living through an unprecedented pandemic. I believe I speak for many of us when I say that there is finally a light at the end of the tunnel. I'm pleased to report significant improvements across our portfolio in recent weeks, including meaningful sequential occupancy growth, as well as achieving portfolio breakeven EBITDA in March.

Overall, I'm very optimistic about our outlook going forward. To start, I've been encouraged by the pace of vaccinations across the U.S., which has helped to drive a dramatic increase in consumer confidence and greater mobility. On the economic front, there are several tailwinds that are fueling increased economic activity. State and local jurisdictions have begun lifting restrictions on travel and public gatherings, paving the way for increased mobility.

Ongoing government stimulus, including President Biden's $1.9 trillion stimulus plan passed by Congress in March, has continued to provide relief for those most economically impacted by the pandemic while also fueling increased savings for others. The U.S. savings rate now sits at approximately 28%, the second highest rate on record, while personal savings exceeded $2.5 trillion in March, up from $2.4 trillion recorded in February. Personal consumption expenditures are currently forecasted to reach 7% this year, which would be the strongest PCE growth since 1955, and business investment spending is expected to be close to 8%.

Both forecasts materially higher than at the end of 2020. And if approved, proposed government infrastructure investments will be another major boost to the economy. As a result of these factors, 2021 forecast the GDP is now averaging 6.4%, which is the highest projected level since 1984. All of this bodes incredibly well for our industry.

Against this backdrop, we remain laser focused on our key near-term priorities, which include returning to profitability by safely and efficiently reopening the balance of our portfolio and reducing our monthly burn rate. I'm pleased to report that our March burn rate was just $26 million, down from a high of $85 million at the start of the pandemic with an eye toward breaking even in the second half of the year. In addition, we remain focused on continuing to reimagine the hotel operating model with another $15 million of identified labor savings, bringing the total annual cost savings to $85 million or nearly 300 basis points of margin improvement. Additional priorities include further strengthening the balance sheet by deleveraging through asset sales and pushing out maturities, which Sean and I will provide more color on shortly.

And finally, pivoting to offense. As we relaunch our Bonnet Creek meeting space expansion project and selectively pursuing attractive and value-enhancing acquisitions in our target markets. Turning to our first-quarter results. I am pleased with the sequential quarter-over-quarter improvement, including a material pickup in demand trends in March.

Overall, results were driven by strong performance at our hotels located in resort markets, as well as those with proximity to strong leisure demand generators. First-quarter occupancy at our consolidated portfolio, which includes both opened and suspended hotels, increased from 21% in January to 33% in March. For our open hotels, occupancy reached 46% in March with 17 of our hotels surpassing 60% occupancy compared to just seven in February. This improving demand trend, coupled with our relentless pursuit of cost-saving measures and efficiencies, allowed us to reach breakeven EBITDA for our portfolio in March, well ahead of our initial expectations.

We were able to break even -- we were able to reach breakeven EBITDA from March with occupancy of 32% and average rate down 25% versus 2019 levels, well below the targeted breakeven occupancy range of 35% to 40%, along with rate declines of 15% to 20% we previously communicated, making our cost-saving measures and efficiencies all the more impressive. As a result of improving demand trends, we continue to make progress on hotel reopenings, including the Hotel Adagio and Le Meridian in San Francisco and the DoubleTree at the Seattle Airport, all of which were reopened toward the end of March. We now have just seven hotels that remain suspended with the W city center in Chicago expected to reopen next week and the 1,900-room Hilton San Francisco Union Square scheduled to reopen prior to Memorial Day weekend. The Chicago Hilton is scheduled to open in mid-June.

In terms of our reopening of four remaining hotels, we currently expect these hotels to reopen by the end of the third quarter as travel restrictions ease and demand recovers. From a segmentation perspective, leisure accounted for roughly two-thirds of our demand during the quarter with rooms-related leisure revenues nearly doubling from the fourth quarter of 2020. While we witnessed clear signs of pent-up event spending at several of our resort properties, including the Hilton Bonnet Creek in Orlando, where outlet spend was $102 per occupied room or 23% higher than Q1 2019. While at the Waldorf Bonnet Creek, that figure was $180 or 43% higher than Q1 2019.

In addition, golf and spa expenditures at the resort exceeded $122 per occupied room, more than double what we generated during the first quarter of 2019. Overall, total ancillary revenues, excluding food and beverage, given that several of our outlets remain closed, exceeded Q1 2019 levels by more than 30% during the quarter. Business transient demand showed marginal improvement from last quarter, while group demand began to show signs of recovery with small group bookings in the quarter for the quarter. While lead volumes continue to increase, up from 50% of 2019 levels in January to 80% of 2019 levels in April.

Not surprisingly, our top-performing hotels for the quarter are located in leisure destinations with minimal travel restrictions in place. Each of our three hotels in South Florida average occupancy rates over 80% for the quarter on stronger-than-anticipated leisure demand. In many of these leisure markets, the demand pace has been so promising that our teams have been able to increase rate by yielding out lower-rated discounted for more profitable channels. Focusing on our top markets.

Our two hotels in Key West, the Waldorf Casa Marina and the Reach, Curio Collection continue to outperform and lead the way for our portfolio. Lounge occupancy averaged an incredible 96%, while combined revenues of $25 million for the quarter surpassed budget by nearly $9 million. The hotel's combined first-quarter RevPAR of $440 not only grew 24% year over year, but it also surpassed their 2019 first-quarter RevPAR by nearly 5%. In addition, both hotels witnessed strong growth in ancillary spend with combined total revenue averaging $611 for the quarter.

Outlet spend per occupied room hit a record $95 during the quarter, which was up 28% to 2019 and was largely driven by the Reach's successful new restaurant concept. While Key West has been one of the strongest hotel markets during the pandemic, our hotels have performed particularly well. With both hotels having consistently outperformed the Key West track, as well as their respective competitive sets in RevPAR index. Given the phenomenal pace of demand growth and strong rate, we feel very optimistic about Key West for the balance of the year.

In terms of our other strong markets. Miami was another top performer for the quarter with occupancy at our Royal Palm Hotel increasing from 69% in January to 90% in March on strong spring-break-related leisure demand. Puerto Rico has also been a success story with demand at our Caribe Hilton ramping up strongly throughout the quarter to reach 72% occupancy in March. Given travel restrictions to the Caribbean and other tropical destinations, Puerto Rico has been a popular alternative, especially for East Coast residents.

Turning to Hawaii. Both of our properties saw growing momentum during the quarter. Hilton Hawaiian Village averaged 21% occupancy with just three of five towers open. While at the Hilton Waikoloa Village, occupancy averaged 41%, reaching an impressive 60% occupancy in March with close to $300 in total RevPAR for the month generated by strong spa and recreation revenues.

While travel restrictions in Hawaii remain in place, the ability to bypass quarantine restrictions with proof of a negative COVID test has been greatly facilitated by domestic airline carriers, many of whom offer rapid COVID tests, either at home or at the airport. The real game changer for Hawaii will be when unrestricted Pan-Pacific air travel is allowed for those fully vaccinated, which could happen as early as July 1. Recent demand to Hawaii has also been aided by expanding domestic airlift from Southwest and Hawaiian Airlines, as well as the introduction of additional wide-body service from United and American. The increased domestic airlift and corresponding demand is expected to offset anticipated weakness from East Asia travel in 2021, where vaccines have been slow to roll out and travel restrictions remain in place.

Overall, we are confident about Hawaii's recovery this year with occupancy at Hilton Hawaiian Village forecasted to reach 75% for the balance of the year, while we expect occupancy to average over 80% at our Hilton Waikoloa Village hotel. Looking ahead to 2022 in Hawaii, we are expecting a very strong year, driven by continued demand strength, increased group bookings and the return of East Asian travelers who will likely be hungry for international travel after two years of restrictions. Our group booking pace for Hawaii in 2022 currently sits at over 40% ahead of last year with incentive travel in East Asia group demand paving the way for recovery. Simply put, we believe Hawaii has the potential to experience the same impressive demand growth as we have seen in Key West and Miami over the past few quarters as restrictions are eased and pent-up leisure demand accelerates.

On the capital recycling front, we are encouraged by the market interest and strong pricing we have received on assets that are currently being marketed for sale, further supporting the ongoing demand for quality institutional lodging assets. Accordingly, we recently announced the sale of the 97-room W New Orleans-French Quarter hotel for gross proceeds of approximately $24 million. We are pleased with the deal pricing, which translated into a 4.3% cap rate on the hotel's 2019 NOI, inclusive of $8 million in anticipated capex. Transaction allowed us to pay down debt, and it also reduced our exposure to a market in which we already have a strong presence.

We have several assets in various stages of the disposition process and expect to report positive news in the coming weeks. As stated last quarter, we plan to sell upwards of $300 million to $400 million of noncore assets this year to reduce our overall leverage and continue with our portfolio evolution, and we remain on track to achieve this goal. Thinking about the operational landscape for the balance of the year, we are encouraged by the continuation of March's strength into April with April occupancy average nearly 50% for our open hotels or a sequential monthly increase of over 500 basis points, while April RevPAR was $85 for open hotels or $11 higher than March. Digging deeper into demand, we expect to see strong leisure demand continuing through the summer.

Furthermore, we anticipate that a large portion of the outbound U.S. travel market, which totaled 100 million travelers in 2019, will choose to focus on domestic travel, driving accelerated growth in markets like Hawaii, South Florida, Southern California and potentially urban markets like San Francisco, Boston and DC. We are not expecting to see any material changes in business travel until more employees return to the office with some companies targeting after Labor day for this transition. On the group side, we expect to continue to primarily drive demand from localized short-term SMERF groups in the near term, although there is exciting momentum for the return of large groups as early as late Q3 in certain markets.

We have every expectation that sales force will commit to holding their annual Dreamforce convention in person in San Francisco at the end of September. And the Annual UN General Assembly conference in New York is currently expected to be held in person in mid-September. We have been seeing tremendous incremental lead volume for group business across our portfolio with meeting planners expressing participants' desire to meet and connect. As large gathering restrictions ease, we expect these leads to convert to actual bookings in 2022 and beyond.

Looking further out, group bookings for 2022 have increased each of the past two quarters, growing by over 110,000-room nights or 13% since September 30, 2020, with acceleration following the approval of COVID-19 vaccines for emergency use in November 2020. Before I hand the call over to Sean, I want to reiterate my excitement and optimism of Park's outlook in the coming quarters. We believe our portfolio is incredibly well-positioned to reap the benefits of strong leisure demand in the short term with markets like Hawaii and Florida leading the way, supplemented by healthy group demand over the next few years as conferences and meetings resume and people eagerly reconnect with colleagues and peers. With over $1.3 billion of liquidity available and less than 2% of debt maturing through 2022, we are well-positioned to execute on our strategic priorities and capitalize on the exciting pace of recovery and growth.

And with that, I would like to turn the call over to Sean, who will provide some more color on our results and an update on our balance sheet and liquidity.

Sean Dell'Orto -- Chief Financial Officer

Thanks, Tom. Overall, we were pleased with the first-quarter performance with RevPAR increasing 49% over Q4 2020, driven by a 600-basis-point sequential improvement in occupancy, while average daily rate neared $155 for a 15% quarter-over-quarter increase. As for the bottom line, operating losses tapered with negative adjusted EBITDA of $49 million, exceeding our internal estimates as solid performance across several of our resort properties and enhanced operating efficiencies across the portfolio helped to support results. For example, at our Casa Marina resort in Key West, both RevPAR and EBITDA exceeded prior peak, up 5.1% and nearly 16%, respectively, versus 2019 levels, while margins came in at roughly 51% for the quarter or nearly 600 basis points higher than Q1 2019.

Looking ahead to the second quarter, we expect operating losses to narrow further as occupancy for our consolidated hotels is expected to increase another 8 to 10 percentage points sequentially to the upper 30% range, while hotel occupancy for open consolidated hotels is forecast to exceed 40% for the quarter. Leisure demand is expected to continue to drive results across both drive-to and fly to markets in Hawaii, Florida, Puerto Rico and Southern California. Turning to the balance sheet. As of quarter end, our liquidity stood at $1.3 billion, including $474 million available on our revolver, while our net debt totaled $4.5 billion.

Our monthly burn rate continues to shrink, down from averaging $42 million during the fourth quarter to $38 million in the first quarter with March coming in at just $26 million. As we noted last quarter, we anticipate achieving breakeven over the second half of the year. And given the positive momentum we witnessed in March and April, along with the improving macro trends Tom discussed earlier, we see a path to reach breakeven during the third quarter of 2021 with our portfolio expected to generate positive adjusted -- positive hotel adjusted EBITDA during the second quarter. From a balance sheet management perspective, our focus remains on reducing leverage through asset sales and organic growth while further enhancing the balance sheet by extending maturities and reducing our reliance on bank debt to provide maximum financial flexibility as the industry begins to recover.

The public debt markets remain open and constructive, and we will evaluate the potential for additional capital raises to further enhance the overall quality of our balance sheet as needed. Finally, I would like to highlight some of our recent ESG efforts and accomplishments. In January, we published our third annual corporate responsibility report, reinforcing our ESG commitment to our stakeholders. We also recently announced that four of Park's hotels earned the prestigious Energy Star certification in 2020 for superior energy performance.

We are extremely proud of our four hotels as only 26 hotels in the U.S. earned the certification last year. On the social side, our diversity and inclusion steering committee, which we created almost a year ago, continues to drive our company culture by emphasizing the central role that diversity, equity and inclusion has played in Park since our formation. By establishing a formal committee, we are helping to demonstrate our commitment to diversity and inclusion to both our internal and external stakeholders, and we look forward to sharing additional information on this topic with you.

We hope that by these efforts, we can help move the industry forward and make it a more diverse and accepting place. We are also humbled to, once again, be recognized by Newsweek as one of America's most responsible companies in 2021, marking the second consecutive year Park has been recognized for ESG initiatives. This concludes our prepared remarks. We will now open the line for Q&A.

[Operator instructions] Operator, may we have the first question, please?

Questions & Answers:


Operator

[Operator instructions] Our first question is from David Katz with Jefferies. Please proceed with your question.

David Katz -- Jefferies -- Analyst

Hi. Good morning, everyone. Thanks for all the detail. Look, I wanted to just talk about the -- and get the sort of negative out of the way first, right? There's still a handful of hotels, and they're among the larger ones that are closed.

When they do come back, do they necessarily have to ramp more slowly than smaller hotels? And I ask it in the context that things have just continued to progress positively seemingly on a weekly basis of late.

Tom Baltimore -- Chairman and Chief Executive Officer

It's a fair question, David. Let me try to put it in perspective for you, and let's use Hawaii as an example. We -- we opened one tower, then a second tower, now three. But if you just look at the performance and how quickly things are snapping back, Hilton Hawaiian Village, we were about 13% occupancy in January, moved that to 34% in March.

We're expecting to be close to 60 in the second quarter and, again, as we've said, probably high 70s in the third quarter and continuing that into the fourth quarter. We could not have predicted that. I mean, this is a fly to market. You've got testing requirements that are still in place.

But again, the pent-up demand, the revenge spending that we're seeing, it's really snapping back. It's certainly quicker than we could have anticipated, so let's then fast-forward and look at San Francisco. We did not expect candidly to reopen the Hilton San Francisco till probably later in the year. And what we're finding much to our surprise here, as we sort of look out, is that we're going to open before Memorial weekend.

The state of California, obviously, is set to open everything around June 15. As of May 6, they've started to relax reopening for bars and meetings and receptions, and we look at our group pace. And we also look what's happening, whether it's going to be both on the leisure front, maybe it's small groups, maybe it's on the business transient side. But we're seeing our hotels there.

If you take the JW Marriott and Fisherman's Wharf or Hyatt there, again, began the year at 16%, already ramping up to Q1 in the mid-20s. And we expect to be in the high 30s, and in one, probably in the low 50s. So our asset management team under Sean's leadership and the extraordinary men and women that we have there have just worked so incredibly hard. Think about where we were a year ago when we had a burn rate across this portfolio.

And admittedly, we have a lot more big boxes and a lot more exposure. A burn rate in that $85 million to $90 million range, and we've gotten it down to $26 million. And it's just relentless work of reimagining the business, thinking about things differently, working with our operators and taking permanent cost out of the business. So we are -- every day, we are more encouraged as we sort of look out.

And so we're certainly more confident today, as we think about reopening San Francisco and the same thing is applying to Chicago. We're seeing the same sort of buzz and excitement, and people have -- people want to reclaim and recapture their lives, not only from a leisure standpoint, but to reconnect with their colleagues from a -- from a business standpoint. So we're seeing some of the same green shoots in Chicago as well that are also encouraging. Admittedly, I'd say New York is the most complex.

So that's one that we will continue to study and monitor carefully and determine the right opening date. But even in New York, they're trying to reopen much faster than we originally thought. So your questions are very fair question. But I would tell you, look at the performance, look at what we've done, look how we've handled, candidly, as situation, probably more difficult than most of our peers, just given our footprint and our distribution, but the other side is this is a very seasoned team of men and women.

We knew what to do. We knew how to do it, and we reacted accordingly.

David Katz -- Jefferies -- Analyst

I would agree. And if I can just follow up quickly on sort of the above property expense interactions because I think you touched on that a bit in your answer. But progress that you've made with your operators, the brands on -- and how much of that is permanent?

Tom Baltimore -- Chairman and Chief Executive Officer

Yeah. It's another great question. And obviously, being someone that's been in the business a long, long time, and I know there are going to be skeptics out there that look and say, we've been to the movie before. We take cost out in a recessionary environment.

And then as soon as things come back, we have the arms race, the brands start adding all of their amenities. And then the cost creep starts. Here's the difference. And for the listeners, remember, I worked for multiple varied companies, and I worked for Hilton twice.

Obviously, before launching my first company, and of course, taken this assignment, which, by the way, this is the fifth week -- fifth year anniversary that I rejoined Hilton to spin out Park and have enjoyed every bit of this extraordinary team we put together. Obviously, the last year has certainly been testing for all of us. But the difference is Hilton and Marriott given how paternalistic, given how careful they are with their workforces. But think about how they have retooled and taken out 20%, 30%, 40% of their cost at the corporate level.

I have never seen that before over a long career. So I use that as sort of evidence, number one. And then number two, we've all had to think about the business differently. We never could have imagined that we could have gotten to breakeven in March at 32% occupancy across this entire portfolio, given the carrying cost.

We're still carrying Chicago, New York, San Francisco that are closed. So it's just phenomenal work by this team by really digging in and looking at every line item how we can take cost out of the business. The challenge for all of us is as we pivot and move forward, that we make it permanent, that we think about the business and that we respond to the changing customer preferences that are out there. So we're confident we're going to have to continue to be disciplined about it and really push and partner with our operators.

But I hear different tone and a different level of communication coming from those brands and our operating partners as well, saying we've always got to think about the business differently. We've got to make these 300 basis points of margin benefit. The $85 million that we've taken out. We've got to make that permanent so that we can have a more viable business and, candidly, more attractive to investors as we move forward.

David Katz -- Jefferies -- Analyst

I appreciate it. Thank you very much.

Tom Baltimore -- Chairman and Chief Executive Officer

Thank you for the questions.

Operator

And our next question is from Smedes Rose with Citi. Please proceed with your question.

Smedes Rose -- Citi -- Analyst

Hi. Thanks.

Tom Baltimore -- Chairman and Chief Executive Officer

Hi, Smedes.

Smedes Rose -- Citi -- Analyst

Hi. I just wanted to follow up a little bit on that, with the larger hotels that I think have a sort of a larger group component, and it sounds like your group leads are accelerating and sounds very positive. But just in general, are you hearing any sort of feedback or hesitancy from -- on the group side or even the corporate transient side that companies are looking to reduce their overall travel budgets, having enjoyed a year without having spent any money on that front? And kind of any updated thoughts you have on this idea that business travel will be kind of permanently impaired?

Tom Baltimore -- Chairman and Chief Executive Officer

Yeah, Smedes, it's a great question, and let me parse it a couple of ways. The honest answer is, I don't think we're going to really know until we have cities completely opened. We have schools opened. We have offices opened and people are back to figure out what that new rhythm is going to be.

There's no doubt that business transient, one can assume that it's going to be impacted on the margin. Is that permanent impairment, 10%, 15%, 20%, 30%? I certainly am not in that camp. But will people be more selective about some of the trips that they make? I think the answer is yes. But I also think that if we're going to allow people to work remotely and work in different locations than in some respects that whatever we may have lost, you can make a case that some of that gets picked up as they will travel more coming back to the corporate headquarters, coming back for training activities.

And if anything, I think on the group side, I think the need for companies to bring their people together in a safe environment for training, for team building, for continuing to recognize, you're never going to do away with that need to be together. So we'll have to wait and see what that impact is on the business transient. I don't think it's going to be as significant as some say. I think the sales and marketing people and the people who say, "Well, I don't -- I can just zoom in as I make that presentation.

I don't need to be there." I think that's going to work for them until they lose that piece of business and their competitor has all of their men and women on site. And they're -- they're there making that pitch, and they've shown that effort to be together. I sit like many of you on many organizations and boards and industries, and we're all doing Zoom and these different applications because we really have to, but they're painful. They don't have the same intensity, the same engagement.

You're not seeing the same collaboration and communication. We're not seeing it here in our office. And we've got a small SWAT team that's still been here since the pandemic, and we've got a lot of people that are working remotely. They're working hard.

We're getting the work done. But we all miss that time together. And so I'm confident that you'll see, like we're seeing on the leisure, and like we're seeing in some of the markets that we thought would be slower to ramp, there we're seeing green shoots out there that people want to be back in the office, they want to be back on the road and they want to be back connecting.

Smedes Rose -- Citi -- Analyst

OK. All right. Appreciate it. Thank you.

Tom Baltimore -- Chairman and Chief Executive Officer

Thank you.

Operator

Our next question is from Rich Hightower with Evercore. Please proceed with your question.

Tom Baltimore -- Chairman and Chief Executive Officer

Hi, Rich.

Rich Hightower -- Evercore ISI -- Analyst

All right. Hi, everybody.

Tom Baltimore -- Chairman and Chief Executive Officer

Good morning.

Rich Hightower -- Evercore ISI -- Analyst

Tom, I want to go back to the $85 million annualized expense target, the 300 basis points of margin improvement. Remind us, if we go back maybe six months ago or sometime last year, how has that target or those targets, how have they evolved over that period of time? And then how does the current sort of labor bottleneck constraints, how does that factor into that target as well?

Tom Baltimore -- Chairman and Chief Executive Officer

Yeah. Let me start, Rich, and then I'll let my partner, Sean, jump in here because it's a lot of the great work by Sean and the men and women on our asset management team and our FP&A team as well. Originally, it was $70 million in cost, nonunion, about 1,100 employees, about 375 of those management, and about 600 approximately hourly and then really about 100 jobs, plus or minus, that we weren't replacing. And what happens just over time is you get a little chunky.

You get a little complacent, and you have layers. And we've really worked for the operating partners to sort of take cost out. Think about what is really needed to operate the business. Sean and team went back and recently and have now found another $15 million, and we're confident, as I said, it's going to be a requirement, it's going to be one have to continue to work and push.

As I mentioned earlier, just think about how the brands had to respond as they had to retool, they were affected as well. Their models don't work so well when their franchisees and owners have no revenue, they pay no fees. So while the capital-light business is a better business model, some would say, it's not a perfect business model if your constituents have no revenue. So that also was a wake-up call for them to also think about how we permanently take cost out of the business.

So let me pause there and let Sean to add some additional color.

Sean Dell'Orto -- Chief Financial Officer

Yeah. I think when we started out with it, it was really just kind of baseline each of these properties in the staffing levels, and a lot of these are managerial type levels or assistant managers, whether it's front desk or F&B, and just trying to obviously take this opportunity to 0 base it and ultimately push. And so we ultimately came with that $70 million. We since then have looked at -- as we've looked at how the F&B operations are being thought through and living with the skeleton kind of environment that we're in, labor environment that we're in here, recognize that there's some redundancies still that we could ultimately take one manager on F&B operation.

That was a situation where I had an F&B manager over each restaurant. Now you combine that multiple restaurants under one manager and things like that. Some vacant positions that you knew in the end, we thought -- thought again about not need to fill. So just another kind of crack at it, again, with some of the experience and some of the things we garnered over the next -- over the last nine months or so.

So it's just continuing evolution of rethinking the model there. And finding those and working with our partners here to kind of be creative. So we do think these are permanent. I'd say another $5 million is really complexing, where a sales team in an area, we've looked at a little differently.

Or one example is we had our General Manager of Hilton Hawaiian Village, who is outstanding, and we had our General Manager at the Waoikoloa resort take up a different position. And we use opportunity to have her assume the role of kind of a lead manager, managing director over two hotels and save about $500,000 by not replacing a general manager position at the Waoikoloa resort but ultimately using hotel managers that are certainly qualified to work under this main regional director or managing director for Hawaii. So again, just kind of rethinking things, somewhat opportunistic, but we think that's kind of the right model for us to go forward.

Tom Baltimore -- Chairman and Chief Executive Officer

Rich, the second part of your question where you asked about some of the labor challenges. Look, there are people who are unable to go back to work, whether they have school-aged children in home, the schools haven't opened. And that's certainly part of it as we look at some of the gaps today. But the other part is, and that's -- the elephant in the room, is that there are very generous unemployment benefits.

And you hear numbers to the tune of $20 to $23 an hour in full benefits. So there are some that have that bridge, if you will, at a -- and it's very accommodating bridge through September. So again, we would fully expect, as vaccinations continue to accelerate, people are more and more confident. As we get to the fall, you expect people back in their offices for some significant period of time, plus kids in schools.

And then I think we're going to get a much better sense of really where the labor picture is. And we fully expect. In our case, given the fact that we do have union properties with recall rights, we fully expect that many of those men and women are going to be excited to come back, and we're going to welcome them back as we expect that demand will continue to accelerate and grow.

Rich Hightower -- Evercore ISI -- Analyst

Great. I appreciate all the detail there. And maybe just a quick follow-up on Hawaii. If we look at the fact that Key West, for instance, is essentially, at least for the first quarter back to a 2019 run rate and given some of the comments you mentioned earlier just on the ramp-up in Hawaii, acknowledging that there are some differences in terms of inbound demand and all that sort of stuff, but what do you think the path to prior peak might be timing-wise for Hawaii?

Tom Baltimore -- Chairman and Chief Executive Officer

It's a great question, Rich. And if you look at Hilton Waikoloa Village, and I was spending some time on this yesterday, because it was so astonishing, and I think really a great example. We were, January, about 24% occupancy, finished the first quarter up 41%. We expect the second, third and fourth quarter, as I said, during the prepared remarks, to be well into 80%, if not above, for the balance of the year.

Now remember, we shrunk half the hotel, made it a 600-room property as part of the deal of the spin with Hilton Grand Vacations. And so if you think about rates, so our average rate in that second quarter will be about 7% higher than 2019. The third quarter will be slightly below that we had a couple of big buyouts in '19, insurance buyout. So it was a little skewed.

But in the fourth quarter of this year, we expect Hilton Hawaiian, Hilton Waikoloa to -- ADR to be 15% higher in that fourth quarter. So it's not inconceivable that we're back next year. And part of the earlier question, just trying to show, that is a far greater snapback than any of us could have projected. I think the thing that people, with all due respect, are missing is that this is a global health crisis.

It's not a typical normal cycle. And we're solving the crisis, demand is going to snap back faster, and we're seeing evidence of that. I also think that people thought there was going to be all of this distress, and there's not. We're going to see some, they'll be in the pockets.

There'll be conversions, and there'll be people that are undercapitalized and will have a tough time, but it's not going to be this S&L crisis that we -- that some of us saw 30 years ago. I just don't think that's the scenario. And there is a need and a desire to be connected. People want to get out of the bunker.

And I think we're going to see it across all the demand segmentations. Yes, business transient will lag, but it will lag until people are back in the office and people want to get on the road. I've been traveling. I've been fully vaccinated for several months, and I have been traveling and eagerly and excited to.

And I think you're seeing more and more people that have that desire.

Rich Hightower -- Evercore ISI -- Analyst

OK. Thanks, Tom.

Tom Baltimore -- Chairman and Chief Executive Officer

Thank you.

Operator

Our next question is from Neil Malkin with Capital One Securities. Please proceed with your question.

Neil Malkin -- Capital One Securities -- Analyst

Hey, everyone. Good morning.

Tom Baltimore -- Chairman and Chief Executive Officer

Good morning, Neil.

Neil Malkin -- Capital One Securities -- Analyst

First question just kind of on the, I guess, staffing and margins if -- can you give a sense for what the EBITDA or margin benefit was from the difficulty in finding labor and just kind of thinking about what fixed costs kind of look like as those people come back from there, as you called it, very generous unemployment benefits and as your -- additionally, as your kind of core business traveler comes back and expect certain things, what kind of snapback in costs or fixed costs? Should we expect? Or how should we kind of think about that?

Tom Baltimore -- Chairman and Chief Executive Officer

Let me try to unpack, there's a lot embedded in there. A few things. If you think about some of our union operations, we are we're providing wages and benefits really above any of those thresholds. So really not a factor there.

And as you -- also as you think about the business, customer preferences are also changing. They want digital key or the equivalent for the front desk to be able to bypass. They want that privacy in their rooms. And not all are going to want stay-over cleaning.

And so we've got to find that right balance. So there are -- in the food and beverage offerings, as you think about room service, that it will be -- probably in most situations, obviously, not in some luxury hotels, but it will be limited. It'll be sort of not going to drop. Again, people aren't going to want people in their rooms.

So there's a real opportunity to continue to reimagine the business and how -- and forget about how we did it historically, but really those changing preferences. So as we've said, we're confident and the $85 million. We have to continue to work hard to deliver that and to partner with our operating partners, but we don't see any retreat of that. We really don't see any other way.

And I think -- as I said earlier, I think the brands they understand that. It doesn't mean there won't be some amenity creep in the perpetual arms race, but I really think there'll be less of that coming out of this crisis than what we've seen in past cycles.

Neil Malkin -- Capital One Securities -- Analyst

Sure. I think I was kind of looking at it from -- do you expect to see just like -- even incorporating your savings, I guess, step-wise increase in, let's say, the third quarter when you start to see people come back? And just trying to think about -- I think everyone has been impressed with how expenses have been, just relative to the sort of sequential increase in demand and revenues, but I think that -- is it fair to say that there's sort of a lagged effect there and you'd expect to see a pretty substantial bump in fixed cost as we get to that part of the year? That's kind of more what I was looking at it or ask.

Tom Baltimore -- Chairman and Chief Executive Officer

Yeah, yeah. You could have on some margins. But on the other side of that, you would -- insurance costs, we thought there would be a huge spike. We think those could be flat to slightly negative.

We'll see how that ultimately price is. Property taxes in many environments, where there's been some sort of impairment and at least in the short run, we haven't -- we've got an income approach and operators and owners haven't had income, so there could be some relief there. You're right, there could be some inducements that are necessary in some markets, depending on some of the labor challenges. We'll look at that on a case by case.

I don't have any data to share today. We're not seeing that. And in many cases, we're seeing a lot of people eager to get back, and some are waiting. Obviously, there's a little bit of the health concern, but some of that is the inability to deal with some of the child care issues.

So it all fits together, and I think we'll have -- we all have to take a wait and see and see how that unfolds. But we're confident, insulated, too, and we've got enough to absorb given the $85 million that we're confident we're taking out of the business.

Neil Malkin -- Capital One Securities -- Analyst

Great. And my other question is, you guys are seeing good progress, right, in 2022. Just maybe as you sit here today, could you give us a sense of what you think the sort of run rate relative to 2019 will be for the large association citywide group performance in, let's just call it, the first half of 2022, I guess, compared to '19 would you kind of think as you sit here today and you kind of see what the booking trends look like and rebooking from cancellations look like?

Sean Dell'Orto -- Chief Financial Officer

Yeah. I mean, the rebooking trends, I think we have about $500 million that have been canceled through Q1 in total for this pandemic. We continue to rebook about roughly about 25%, 26% of that. And I think we've still got some in the pipeline we're looking to place here.

So we'll continue to layer that on. And a lot of that's getting rebooked into '21, '22 and '23. From an overall citywide perspective, I would say, as we look at our markets, for sure, we have some pretty strong -- strong pacing, if you want to call it that, for room nights in certain cities. Hawaii being one of them is exceptional, well over 200% relative to kind of, I would say, prior pandemic levels.

Chicago also pretty strong and over -- kind of over indexed, over 100% indexed against prepandemic levels. I'd say, on par, would be kind of DC, San Diego, Seattle, Boston and Denver as we look at those kind of direct right in the vicinity. And then we've got a couple of markets that are lagging somewhat. I think it's probably more a function they've been doing better in picking up things earlier than later in something like Orlando or Miami.

So -- and I think Miami is a little bit unique case, given it -- I think had the Super Bowl. So I think, overall, '22 from a citywide looks to be pretty strong on top of the fact that we're pacing pretty well there and feel really good about what we've seen in pickup here on the last -- pretty much since the vaccines were announced in November. We've talked about it in our release. We've seen about 110,000 rooms picked up.

And I think we're ultimately in April pacing at 80% of 2019 levels, and that's up from 50%. So I think it's all trending in the right direction. And I think as some of these other markets like New York and Chicago open up, and I have already announced that, you'll start to see a lot more conversion activity, I believe, as you -- we've seen plenty of lead volume for these markets. People haven't been able to pull the trigger because you're just looking at capacity restrictions.

So I think as those kind of open up, as we've seen in other cases, especially in places like Orlando, as they've opened up, we've seen a lot more activity come through on the group side.

Neil Malkin -- Capital One Securities -- Analyst

Thank you.

Sean Dell'Orto -- Chief Financial Officer

Thank you.

Operator

Our next question is from Anthony Powell with Barclays. Please proceed with your question.

Anthony Powell -- Barclays -- Analyst

Hi. Good morning. Just a question on New York. So I'm sitting in my office and I'm looking outside and I see tourists on the double-decker buses, restaurants reopening, museums are reopening.

It could be a pretty decent leisure travel season in New York this summer. So why not open the hotel there now opposed to waiting until the fall, where there may or may not be corporate travel coming back?

Tom Baltimore -- Chairman and Chief Executive Officer

Well, Anthony, great to hear from you, and I hope you're doing well. And thanks for the question. The New York situation is certainly the most complicated we are hearing and seeing some evidence now. It looks like the mayor and the governor are aligned with the city reopening.

Subway is going to reopen. I think that's a start. Keep in mind that based on the work that we've done. 16% of the office workers in the New York region went into the office kind of the last week of April so that's also a pretty good sign.

UN General Assembly, we understand, will have their conference in September. Broadway is going to open probably in September as well. And keep in mind, New York was probably the most broken, given the epicenter of COVID and what happened. You've got 30% to 40%, I think, of the city's inventory of hotels, I guess, remain closed.

Our belief is some portion of those will not open or will be converted. There's some proposed legislation to restrict future hotel development, needing sort of a special permit. So we're studying the market and the situation carefully. Like we've done with the others, when we open, we don't want to shut down again.

And so we want to make sure, candidly, that it's viable and that we will lose less money and then quickly begin to ramp up to make money and not lose more money by reopening. And just given the complexity of that operation as the one of two largest hotels and given the staffing requirements there, we just want to make sure that it makes economic sense. We've, I think, demonstrated time and time again given the complexity of our portfolio and our distribution and given where we were last year at $85 million a month and the great work that the team has done to get it down into the mid-20s. And New York is candidly the highest part of that burn.

So it's one that we want to continue to study. And I would not bet against New York long term. We are big believers that that great city will come back, but it's certainly a tough environment right now that we want to stay alert.

Anthony Powell -- Barclays -- Analyst

All right. And I guess moving to Puerto Rico, you mentioned a few times in the prepared remarks, it seems like that market has gained some mind share among travelers during the pandemic. Have you seen that in your numbers? And has that changed your view of the potential of that asset and how it fits into your portfolio long term?

Tom Baltimore -- Chairman and Chief Executive Officer

Yeah. I think in the prepared remarks, we said north of 70%. And I think it's the comment that we made. If you think about international travel, right, inbound to the U.S.

historically, about $79 million in 2019; outbound from the U.S., about $100 million. And the reality is, given the options, we think fewer Americans are going to be traveling abroad, and they're going to be focused more domestic, more Caribbean or to the Hawaiis of the world. And we think that bodes really well for the Park portfolio. And so given the fact that it suffered through, obviously, the Hurricane Maria a couple of years ago, it's been a $200 million complete redo, it's a fabulous asset in Puerto Rico when you've got plenty of airlift that we -- and it's obviously, given the tie with the U.S., it's an easy trip, an economic trip to make.

So we are encouraged, and we'll continue to watch that and enjoy that benefit. And we've always believed that, that asset is one that it's a core holding and one that we think has potential, certainly from a leisure standpoint.

Anthony Powell -- Barclays -- Analyst

All right. Thank you.

Tom Baltimore -- Chairman and Chief Executive Officer

Thank you.

Operator

Your next question is from Robin Farley with UBS. Please proceed with your question.

Tom Baltimore -- Chairman and Chief Executive Officer

Good morning, Robin. How are you?

Robin Farley -- UBS -- Analyst

Hi. Good morning. How are you? Most of my questions have been asked. I just wanted to follow up with a quick one on group.

You're giving a lot of stuff. Is there sort of an overall 2022 room nights on the books in terms of group compared to '19, the same time that year?

Sean Dell'Orto -- Chief Financial Officer

I mean, right now, we have about 956,000 room nights on the books, and that compares again around -- around kind of the -- if you compare kind of the same pace or kind of what it was on the books this time in 2019 for prior year, it's about 83%. If you look at kind of what it is relative to just what ends up on the books for the year, what that 2019 finished up, it's probably about 40%.

Robin Farley -- UBS -- Analyst

OK. Great. Thanks.

Operator

Our next question is from Chris Woronka with Deutsche Bank. Please proceed with your question.

Chris Woronka -- Deutsche Bank -- Analyst

Hey, Good morning, guys.

Tom Baltimore -- Chairman and Chief Executive Officer

Good morning, Chris.

Sean Dell'Orto -- Chief Financial Officer

Good morning.

Chris Woronka -- Deutsche Bank -- Analyst

Chris. Thanks for all the detail, again. Tom, you did mention the word offense in your prepared remarks. I was hoping maybe we could spend a minute on that.

And kind of my question there is, obviously, you have some terrific properties in these big markets that were significantly impacted by COVID, but some of them had some kind of structural issues, right, whether fly or labor or other expenses before COVID. So when you do go back on offense, I mean, are you willing to go deeper in some of these same markets? Or do we see you go into smaller markets and this more broad-based focused on resorts. And we did see you sell New Orleans-French Quarter, which is a small hotel. So it sounds like the carrying costs you're not necessarily going to look at small hotels.

So just a few words maybe on where you go from here.

Tom Baltimore -- Chairman and Chief Executive Officer

Well, thank you, Chris, for the question. Look, we've got clear priorities for 2021, and it's reopening our hotels profitably and as quickly as we can, continuing to reduce, obviously, our cash burn, which you're seeing evidence there, continuing to reimagine the operating model. We're making great progress there. Selling noncore assets, the W there and -- is the first of others that you will see and read and hear about.

And as I said in the prepared remarks, we're active and we're confident we're going to be able to sell $300 million to $400 million of assets. We're going to work hard to continue to strengthen the balance sheet by pushing out maturities. Obviously, terribly important from there and really begin to pivot to offense. Bonnet Creek is just a fabulous resort.

We've got the 1,500 rooms there. Obviously, the 1,000-room Hilton, coupled with the Waldorf, we're going to expand the meeting footprint. We're going to upgrade to Hilton to Signia. We've 200 acres there with a championship golf course.

So we see that as a really important offensive move. And we have so many embedded ROI opportunities within our portfolio that we're going to continue to evaluate and activate. And then we will continue to look for single-assets portfolios as well. And look, it's not lost on us, as you think about what's happening, and we'll follow the demand generators.

We'll follow the population changes, so you would have -- to get to your direct question, you would certainly expect us being the phoenixes of the world. And parts of Texas that continue to grow. Austin stands out, Nashville. Clearly, Central and South Florida continue to boom, and we don't see that changing.

We're not going to redline the other markets. We certainly believe that the great cities of New York and Chicago and San Francisco, while certainly a tougher operating model, we will continue to evaluate on a case by case. Not inconceivable for us to lighten our model little in San Francisco, just given our exposure there. But there are also huge barriers to entry there, and they're still the epicenter of capital and venture capital, and we don't see that changing.

So the markets there, we'll continue to really watch and monitor the demand patterns carefully.

Chris Woronka -- Deutsche Bank -- Analyst

OK. Very helpful. Appreciate all your thoughts, Tom.

Tom Baltimore -- Chairman and Chief Executive Officer

Thank you.

Operator

[Operator instructions] And our next question is from Lukas Hartwich with Green Street. Please proceed with your question.

Lukas Hartwich -- Green Street Advisors -- Analyst

Thanks. Good morning.

Tom Baltimore -- Chairman and Chief Executive Officer

Hey, Lukas.

Lukas Hartwich -- Green Street Advisors -- Analyst

Hey, Tom. So there's a debate around how the hotel industry might see a demand shift due to what's happened over the past year. And I was just hoping for Park's portfolio, can you provide maybe a sense of how ADR compares across the various segments of business transient, leisure and group?

Sean Dell'Orto -- Chief Financial Officer

Compares right now to 2019 or kind of just how they compare with to each other and kind of a normal setup?

Lukas Hartwich -- Green Street Advisors -- Analyst

Yes, yes, how they compare to each other. So maybe looking back in 2019, maybe on an index basis, how do they compare to each other?

Sean Dell'Orto -- Chief Financial Officer

Yeah. I mean, overall, I mean, clearly, kind of the business transient would be kind of the highest, and I would probably say -- you'd probably say about $250 business transient; group on average about, call it, $225; and leisure about $200. So kind of as you work kind of backwards from that $200, $225, $250 between leisure group and business transient, respectively.

Lukas Hartwich -- Green Street Advisors -- Analyst

Great. And then my other question is just it's interesting that RevPAR performance is similar across several hotels and markets, with some doing better on rate, others on occupancy. I was just hoping you could talk through how operators think about those dynamics, whether to focus on holding rates or focus on gaining occupancy, what are the levers they're looking at?

Sean Dell'Orto -- Chief Financial Officer

I think, fundamentally, it's understanding and going and getting demand that's there. We're still in a very, I think -- I'm trying to kind of unpack the question there about RevPAR looking similar or whatnot. But in the end, you have -- you're going to have certain elements of contract business being taken or ultimately being a bigger part of the mix, which is going to obviously impact how -- how you report. We got things like a New Orleans asset, which is, as we told in multiple calls here, we talked about our -- the Xavier students we have, which we will ultimately get through their spring semester, but that was certainly an EBITDA positive transaction for us, but really just brought in a bunch of occupancy at a low rate.

And so a lot of the hotels ultimately have been working to just drive the demand that's there and available to them, and we're certainly not in any normal environment. So it is case by case. I think, obviously, the most normal-looking places out there are going to be places like Key West, which have been truly leisure oriented and ultimately pushing the rate and having that pricing power there. But in other -- many other markets, it's ultimately just finding discounted leisure, small group business, Tom talked about SMERF coming through and just finding the demand where you can find it.

Lukas Hartwich -- Green Street Advisors -- Analyst

Awesome. Appreciate it. Thank you.

Operator

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

Tom Baltimore -- Chairman and Chief Executive Officer

Thank you, operator. We really appreciate all of you taking time today. We look forward to talking with you in the coming weeks, and we look forward to seeing you in person, we hope, sometime this summer and early fall. I hope all of you stay safe and well.

Operator

[Operator signoff]

Duration: 65 minutes

Call participants:

Ian Weissman -- Senior Vice President of Corporate Strategy and Investor Relations

Tom Baltimore -- Chairman and Chief Executive Officer

Sean Dell'Orto -- Chief Financial Officer

David Katz -- Jefferies -- Analyst

Smedes Rose -- Citi -- Analyst

Rich Hightower -- Evercore ISI -- Analyst

Neil Malkin -- Capital One Securities -- Analyst

Anthony Powell -- Barclays -- Analyst

Robin Farley -- UBS -- Analyst

Chris Woronka -- Deutsche Bank -- Analyst

Lukas Hartwich -- Green Street Advisors -- Analyst

More PK analysis

All earnings call transcripts

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.