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Park Hotels & Resorts Inc. (NYSE:PK)
Q3 2021 Earnings Call
Nov 04, 2021, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Greetings and welcome to Park Hotels & Resorts Inc. third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. [Operator instructions] As a reminder, this conference is being recorded.

I would now like to turn this conference over to your host, Mr. Ian Weissman, senior vice president, corporate strategy. Thank you sir. You may begin your presentation.

Tom Baltimore -- Senior Vice President, Corporate Strategy

Thank you, Ian, and welcome, everyone. I'm pleased to report another quarter of strong improvement to operating fundamentals, and we are pleased to report that we've achieved corporate level breakeven for the first quarter since the start of the pandemic. Based on the strength, we witness that our resort properties, the leisure traveler had significant pent-up demand as evidence by incredibly strong rates and out-of-room spend. Additionally, we are seeing promising signs of sequential growth, business transient, and group demand in pockets across our portfolio.

And while still early, we believe this is a positive indicator that we are on path to recovery. On a macro front, there continues to be encouraging indicators of growth and momentum including a nearly 8% annual increase in non-residential fixed investment projected for 2021 and an ongoing momentum on vaccine distribution, which should contribute to increased mobility and confidence. Additionally, the unemployment rate improved to 4.8% in September, more than 100-basis-point improvement from the start of the third quarter while U.S. personal savings stand at an impressive $1.3 trillion as of September, highlighting the ongoing strength of the U.S.

consumer, which we now expect to continue fueling the strong recovery in overall demand. Against this backdrop, I'd like to remind listeners of Park's unique and compelling value proposition and how the execution of our strategic priorities is positioning us well for the recovery. First, we have seamlessly executed on our non-core disposition program, which is greatly enhanced the overall quality of our portfolio and position the company for attractive long-term earnings growth. In total, we have sold or disposed of 31 hotels accounting for over $1.7 billion of total proceeds since spinning out of Hilton five years ago, including all 14 of international assets.

Second, our portfolio combines the right mix of demand drivers, which we believe should help drive outsize earnings growth over the next few years as business travel accelerates. We believe that there will be a returned to traveling for work and a returned to meeting in person. It's human nature to want to meet up and connect and I firmly expect both business transient and group demand to return to pre-COVID levels. While it is possible that the mix of demand will shift over time to accommodate more flexible work schedules, I want to emphasize that we do not believe there are secular headwinds in lodging and the earnings power of our company remains as strong as ever.

Third, our iconic portfolio of our core hotels contains untapped embedded ROI opportunities, including expansions, brand conversions and potential alternative uses that we believe will create meaningful value for shareholders, and we plan to capitalize on these opportunities over the next several years. These efforts also began with the successful conversions of our Hilton Santa Barbara and our Reach Resort in Key West and continue today with our Signia Hilton conversion and expansion of our meeting space platform at our Bonnet Creek Complex in Orlando and will continue further as we accelerate planning to reposition and expand a number of our core hotels. And finally, we have continued to improve our balance sheet through opportunistic asset sales and debt repayments, surpassing our capital recycling targets and providing us with liquidity and optionality for the future. With over $1.8 billion of liquidity, including the entire $1.1 billion available on our revolver, we are well-positioned to capitalize on the accretive opportunities as they arise.

Turning to our third quarter. Our results came in well ahead of our expectations driven by ongoing strength across our leisure properties coupled with better-than-expected expense savings. Some consolidated pro forma RevPAR of $105 was above expectations and 38 of our 45 open consolidated hotels generated positive EBITDA for the quarter. Particular leisure strength in Hawaii, Southern California, and South Florida helped the portfolio generate an average leisure of transient ADR that was 3.4% ahead of the third quarter of 2019.

While leisure led the quarter, we did see a sequential increase in both group and business transient revenues. Group revenues increased nearly 130% from the second quarter, growing from 8% of mix to 13% of mix while business transient demand increased nearly a 100% to account for nearly 20% of mix for third quarter. Looking more closely at group demand, we witnessed pockets of group strength during the third quarter in markets like New Orleans, Chicago, Orlando, and Honolulu although fourth quarter performance is expected to moderate somewhat as the uncertainty surrounding the Delta variant cost nearly $8 million in cancellations. Many of these groups have rescheduled for later in 2022 and we currently expect to see meaningful pickup in group demand in the second half of 2022.

We are currently trending around 65% to 70% of the group pace for 2019 at the same time in 2018 with these rates exceeding 2019 levels. Our top group hotels for 2022 include the Hilton Chicago and our four assets in Key West and Miami where 2022 group bookings are exceeding 2019 levels. On the business transient side, we have seen a consistent increase in midweek demand among our hotels that cater to business transient demand with midweek occupancy at these hotels increasing roughly 1,200 basis points since the start of the third quarter through October. And this has been a noticeable improvement in midweek demand in October, which aligns with the increased confidence we have been seeing among travelers following the late summer Delta surge.

We expect this trend to continue in the fourth quarter and pick up in the New Year as more corporations return to the office. In terms of hotel reopenings. We are pleased to report that our third largest hotel, the 1,878-room New York Hilton Midtown reopened on October 4th and has already surpassed our performance expectations. The hotel book ran 44% occupancy the first Saturday after reopening and has already hosted a 1,300-person event highlighting the pent-up demand in the market as well as the recovery of the New York market as a whole.

The hotel ended the month of October roughly a $1 million ahead of revenue forecast and we expect the remainder of the fourth quarter to continue to pose strong results with the hotel projected to sell out over the upcoming New York City marathon weekend in just a few days. Transient rates are trending at roughly 95% of 2019 levels and group rates have also remained in line. With domestic transient travel already surpassing 2019 levels in the market along with the reopening of international borders for travelers that we have historically averaged over 60 million annual visitors to the city. We are expecting healthy transit demand in the fourth quarter.

Overall, our portfolio now has 96% of its total rooms opened with operations at just two hotels currently suspended. Diving into other core markets. Our two Hawaii resorts continue to capitalize on strong summer leisure demand trends with third quarter occupancy averaging over 75% and impressive RevPAR indexes of 124% for the Hilton Hawaiian Village and 113 for Waikaloa Village. Hilton Hawaiian Village recorded 91% occupancy for the month of July across its 2,860 rooms with an average rate of $303, well ahead of expectations.

On the Big Island, the Hilton Waikaloa Village achieved its highest quarterly average rate ever with an ADR of $320, which was nearly 25% above the third quarter of 2019. While our hotels benefited from strong demand and increased airlift, demand was temporarily disrupted by the governor's August 23rd plea for travelers not to visit the state due to a rise in COVID cases. Following our -- this announcement of our property saw a material drop in demand with widespread cancellations in both transient and group business for the third and fourth quarters. Under our hotel team's exceptional leadership, our hotels quickly pivoted and enacted contingency plans to modify staffing and operational outlets leading to impressive EBITDA margins for the quarter of 39.4%.

Looking forward, we are pleased that the governor recently announced that Hawaii would once again welcome vaccinated travelers starting November 1st. Although we note that the typical lead time for bookings to Hawaii averages several weeks. We are expecting some upside throughout the holiday season at this point and we are turning our focus predominantly to 2022 when we expect to see such increase in levels of international visitation by mid-year. We are particularly encouraged by the pace of vaccinations in Japan, which has accelerated dramatically over the past few months.

Japan typically accounts for approximately 20% of all visitors to our two Hawaiian resorts. South Florida continues its incredible run with some softness in September attributable to both the Delta variant pause and normal seasonality. Our hotels in Key West continue to achieve record milestones, including an average ADR of $474 at the Casa Marina and $433 at the Reach for the quarter, up 63% and 58%, respectively, over the third quarter of 2019. Looking ahead to the fourth quarter, we are expecting a very strong holiday season with ADRs of $1,200 to $1,400 across our two resorts for the week of Christmas.

In addition, we expect the momentum to continue into future periods as our resorts booked 2,700 more group room nights during third quarter or all future periods than ever before. Orlando finished the quarter with decent momentum following a tough August and early September where leisure travel slowed due to the Delta variant. This momentum continued into October with strong group production at our up-branded Signia at Bonnet Creek as well as our continued leisure strength associated with Walt Disney World's 50th anniversary celebration. Turning to the West Coast.

In San Francisco, we are seeing leisure strength at our JW Marriott Union Square and our Hyatt Centric Fisherman's Wharf, partially offset by the lack of group, business transient, and business at the Hilton Union Square. As we look ahead we are encouraged by the return of international travel to the market, which typically accounts for about 18% to 20% of demand to our San Francisco hotels. We expect the JPMorgan conference in January will occur as scheduled in early January with average daily rates in line with pre-pandemic levels at our Hilton Union Square and JW Marriott hotels. As companies begin to return to the office in 2022, we expect to see more business transient and corporate group demand return to the market.

Finally, to touch on some of our other key markets, we saw stronger than expected demand at the Hilton Chicago for the quarter with incredible rate performance, down just 1% to 2019. We've also seen strong performance from our hotels in Southern California with a combine RevPAR down only 1.6% to 2019 and in Boston where we have seen promising growth in the business transient and group segments. Finally, in New Orleans. We are pleased to report that the Hilton New Orleans Riverside sustained minimal damage from Hurricane Ida in late August.

Power was restored to the hotel within five days and property secured a significant amount of disaster response and recovery group business that offset any business interruption that resulted from the storm. Turning to capital allocation. During the third quarter, we have completed sale of Le Meridien San Francisco, which helped us exceed our goal of completing $300 million to $400 million of non-core asset sales in 2021 with total sales topping $477 million. On the investment side, and significant work is underway on our Bonnet Creek meeting space expansion project with the Waldorf Ballroom Foundation Port and site preparation work started on the Signia side.

We also recommenced approximately $20 million of renovation work to update meeting space at the Signia Bonnet Creek and the Hilton San Francisco Union Square, and another phase of rooms in the Tapa Tower at the Hilton Hawaiian Village. All projects were accelerated to occur during low occupancy periods to minimize disruption ahead of the recovery. Turning to acquisitions. We remain laser focused on maximizing shareholder value and plan to selectively pursue attractive acquisitions and target markets that are both accretive to earnings and net asset value with a continued focus on upper upscale and luxury hotels and top 25 markets and premium resort destinations.

Looking ahead. So for our outlook, it looks better than it did a few months ago. For the fourth quarter, we expect to see healthy transient booking trends with the resumption of international travel, which should benefit our hotels in markets like New York, Miami, and San Francisco. We believe international demand from Asia, particularly to Hawaii, will not see a material increase until the middle of next year although this could certainly accelerate with increased vaccinations.

We also expect our hotels and markets that have historically hosted group events with large international attendees such as New York, Chicago, and San Francisco will see healthy improvement and demand in 2022. As noted while we are forecasting a sequential improvement in business transient for fourth quarter that we are expecting a more material increase beginning in the first half of 2022 and with the presumed return to office for many workers. And for group, we're expecting momentum to build as we head into 2022 with 2022 group pace currently at approximately 66% of the 2018 pace for 2019. Finally, despite ongoing improvements in lodging demand and the expectations for strong business recovery in 2022, the gap between public and private market valuations remains incredibly wide.

A disconnect, which has become increasingly more apparent as the volume of private market transactions builds while providing greater transparency on hotel real estate values. While most other asset classes within the broader of REIT universe trade at a premium to consensus net asset values. Hotel REITs continue to trade at historically wide discounts and Park is no exception. Based on the latest range of analyst estimates, Park trades at nearly a 30% discount to consensus midpoint or $27 a share, a very conservative view on valuation in our opinion.

In our view, however, that is the path to recovery becomes increasingly more apparent with the return to business travel, the valuation gap should eventually narrow. Before I hand the call over to Sean, and I want to emphasize the strength of Park's current position. As we look ahead to a more broad-based recovery, our diversified portfolio is positioned to reap the benefits of incremental growth in the business transient and group segments while simultaneously continuing to capitalize on leisure demand. On the capital side, we are poised for growth in optionality.

We plan to continue to focus on value-added transactions and projects that create meaningful shareholder value. We continue to work tirelessly to unlock value and shape our portfolio for our long-term growth. And with that, I would like to turn the call over to Sean, who will provide some more color on our results and updates on our balance sheet, liquidity, and ESG efforts.

Sean Dell'Orto -- Executive Vice President and Chief Financial Officer

Thanks Tom. Overall, we were very pleased with our third quarter performance with pro forma RevPAR sequentially increasing nearly 35% over the second quarter. Driven by a 900-basis-point increase in occupancy and 11% sequential improvement in rates, which neared $206 for the quarter or just 7% below the same period in 2019. Overall, total pro forma operating revenue was $404 million during the quarter while pro forma hotel adjusted EBITDA was $83 million, nearly double what we reported last quarter.

Q3 adjusted EBITDA was $77 million and adjusted FFO per share was $0.02, marking the first quarter of positive earnings since the start of the pandemic. We witnessed widespread strength across the portfolio with 43 out of 52 open hotels generating positive EBITDA for the quarter versus just 32 during the second quarter. In addition to strong top-line growth, our improved performance was driven by our ongoing efforts to contain these expenses, resulting in hotel adjusted EBITDA margins of nearly 21% during the quarter. We saw particular strength across our 11 resort properties, where margins exceeded 2019 levels by nearly 250 basis points to over 36% for the quarter while over 80% of our open consolidated hotels generated positive operating margins for the quarter.

Looking forward to the fourth quarter, we expect operating results to be a bit choppy, especially in Hawaii and Orlando where both group and transient demand were negatively impacted by the Delta variant, and in New York where its reopening and subsequent ramp up will also negatively impact portfolio margins versus Q3. That said, October is off to a solid start with occupancy for a consolidated portfolio improving sequentially by 270 basis points to 50% while ADR is expected to reach approximately $200 or a 5% improvement over September. November and December look equally as promising with transient pace for our resorts accelerating week over week at levels commensurate with those seen pre-Delta and groups once again booking events in the fourth quarter. Turning to the balance sheet.

As Tom noted, our liquidity currently stands at over $1.8 billion, including nearly $1.1 billion available on our revolver, and over $770 million of cash on hand while net debt is $4.1 billion. Overall, the balance sheet remains in very solid shape with only 2% of total outstanding debt maturing through 2022 and with 99% of our debt obligations fixed. As we have noted in previous calls, the public debt markets that remain open while other markets are also becoming more constructive. As a result and as we plan for next year, we anticipate turning our attention to refinancing our $725 million CMBS loan on our two San Francisco assets coming due in late 2023 to further extend these maturities and refinancing the $650 million, 7.5% senior secured notes that we issued in May of last year to reduce our cost of debt.

We have now paid off 97% of our bank debt leaving us with considerable optionality going forward. Finally, I'd like to finish by providing an update on some of our ESG initiatives. I am pleased to report that we recently published our fourth annual corporate responsibility report for our stakeholders. As the report highlights, we are committed to ongoing improvements across environmental, social, and governance initiatives, as well as continuing to provide additional disclosures around them.

To that end, our report includes indices that align with the Sustainability Accounting Standards Board or SASB and the Global Reporting Initiative or GRI, as well as our first Task Force on Climate-Related Financial Disclosures or TCFD report. We also participated in our second annual Cres Real Estate assessment. We are pleased to be able to report a seven point increase in our scores as we continue to build out our ESG program. Finally, we recently updated some of our ESG-specific policies, including our environmental policy, our human rights policy, and our vendor code of conduct to further ensure our role as a good corporate citizen.

And for more information about these initiatives and Park's corporate responsibility approach, please visit the responsibility tab on our website. This concludes our prepare 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 the line of Rich Hightower with Evercore. You may proceed with your question.

Rich Hightower -- Evercore ISI -- Analyst

Hi. Good morning, everybody.

Tom Baltimore -- Senior Vice President, Corporate Strategy

Good morning, Rich.

Rich Hightower -- Evercore ISI -- Analyst

Good morning, Tom. I am asking, I guess, a question related to -- I guess the context is that the reopening in the Bay Area and the return to office targets in January of next year but I'm wondering as you look at, I guess, what we might consider alternate data around office utilization in the different major markets, if you've noticed any historical patterns there in conjunction with the return to office metrics in other cities around the country and maybe how that translates into the pace and the cadence of the occupancy build up and just kind of the ramp up related to some of those indicators. And then also where do you think about timing for the reopening of Park 55 again in San Francisco.

Tom Baltimore -- Senior Vice President, Corporate Strategy

There's a lot in your questions there, Rich. Let me talk a bit about kind of Park 55 for a second. As we sort of look out to San Fran 2019 pricing, very pleased, very proud about that. Obviously, we've got the Hilton Union Square in the Park 55 across the street.

Union Square is open. Our plan is based on demand trends right now is to open Park 55 probably in December timeframe. Really pleased that JPMorgan is proceeding with the Healthcare Conference. One, we understand they're committed to it, which we think is great.

Obviously, what we're hearing so far is probably 50% to 75% participation at 2019 sort of rate levels. I think also an encouraging sign there. So if that holds true, and we believe it to be the case, it certainly makes sense for us to probably reopen Park 55 in that December timeframe, plus or minus. Again we will continue to evaluate, as you've seen, I think, us do carefully in all of the situations.

We reopen New York and obviously New York is exceeding expectations and doing quite well. Regarding office occupancies, clearly there's more sublet activity in San Francisco than I think in other major markets but I think it would be a huge mistake to sort of bet against San Francisco. We hear this all the time. I think it's important to remind listeners when you look at the amount of innovation that is coming out of that market, the job creation, the educational footprint, the venture capital industry being anchored there, and the amount of capital flows.

No doubt it's a tougher environment right now, particularly for business transient and group but we believe, as you heard in my prepared remarks, that when you get people back in offices, you get more vaccinations for kids and families and people resuming sort of a normal, we fully expect that San Francisco among the other sort of urban markets are going to come back. These are great cities of the world and people who are sort of writing them off, I think it's a bit premature. If you look at, for example, on the leisure front in San Francisco, our JW Marriott and our Hyatt Fisherman's Wharf both continue to do very well. I think in the third quarter, JW Marriott was about 67%.

Obviously a smaller box there but continuing to ramp up in occupancy. The Hyatt Fisherman's Wharf was in the mid-80s. Obviously Union Square, obviously, it's a big group box. So as we begin and see that ramping up in the January and certainly into 2022, we certainly expect that that's going to continue to ramp up nicely as we move forward.

So I'll stop there if you've got any follow-up questions but I wanted to responded to your inquiries.

Rich Hightower -- Evercore ISI -- Analyst

No that's that's helpful. Yeah, I'm good. Thank you, Tom.

Operator

Our next question comes from the line of David Katz with Jefferies. You may proceed with your question.

David Katz -- Jefferies -- Analyst

Hi, good morning.

Tom Baltimore -- Senior Vice President, Corporate Strategy

Good morning.

David Katz -- Jefferies -- Analyst

Thanks for taking my question and for all of the commentary. I did hear a commentary about the prospect of being positioned to be the buyer. And I wondered whether there are circumstances or any discussion worth having on whether you'd be a seller and how you'd think about some further divestitures at the moment yet.

Tom Baltimore -- Senior Vice President, Corporate Strategy

Yeah, Dave, it's a great question. All options are on the table to create value for our shareholders. I think we've been we've been crystal clear and I think I've made a statement before, and I'll make it again, we're gonna get paid either by the public markets or the private markets. And when you look at the kind of significant discount any of these that exist today, it's certainly not sustainable.

And clearly with us trading, it's somewhere at a 30% discount, plus or minus, as I make the case, if you will, for just a minute for Park, think back to the crisis and the decisions that we made. We were calm. We were prudent. We didn't panic.

As Sean outlined, we did three bond deals, we pushed out our maturities. We've now paid off 97% of our bank debt. We didn't do any kind of dilutive equity raises, we didn't sell any assets at wide discounts. All of those were very wise and appropriate decisions.

We've really reshaped the portfolio. We've sold now 30 warranties, sold and/or dispose of 31 assets for the $1.7 billion. We bolted on Chesapeake, 18 assets there for the $2.5 billion. We've achieved all of our 2021 priorities, reopening hotels with the exception of Park 55 and the Hilton in Short Hills, which will open probably in the first quarter of next year.

We've reimagined the operating model, taking out $85 million in cost, about 300 basis points. We've sold five assets this year at just south of $500 million and obviously paid down debt. We've transitioned to offense, meaning looking at those embedded opportunities within our portfolio. And in addition to that, obviously, we're open to acquisitions that that makes sense.

And we have a lot of optionality. Our building gain tax as part of a spin expires at the end of 2021. That's going to be huge. We've got NOLs that are also significant that also give us optionality.

So to your point of selling in your question, I think the most likely scenario would be that we look to partner in JV on an iconic asset or two. Hawaii would not be included on that list but others that we could sell in interest at private market valuations and which would then allow us and shield that with our NOLs, that gives us optionality to go on offense whether that's embedded opportunities within the portfolio or whether that's opportunities externally. We will be thoughtful. I don't know that we have a need to buy an asset today or tomorrow, particularly given the fact that we've been so active in the recycling in the last few years, as I mentioned.

Selling assets and, of course, obviously bolting on the Chesapeake portfolio.

David Katz -- Jefferies -- Analyst

Perfect. Thank you so much.

Operator

Our next question comes from the line of Anthony Powell with Barclays. You may proceed with your question.

Anthony Powell -- Barclays Investment Bank -- Analyst

Hi, hello. Good morning.

Tom Baltimore -- Senior Vice President, Corporate Strategy

Good morning, Anthony.

Anthony Powell -- Barclays Investment Bank -- Analyst

It's a question on acquisition. You mentioned you want to be selective and you're looking to grow eventually. A lot of your peers are focused very heavily on these very ultra luxury smaller properties. You've talked this morning about how you're very, I guess, positive on the long-term return on business travel and group, could you maybe go the other way and lean more into the upper upscale group hotels in urban markets or would you, too, be looking at some of these kind of more small luxury properties that others have been buying?

Tom Baltimore -- Senior Vice President, Corporate Strategy

It's a great question,Anthony. And look, we will continue to follow the demand patterns. We have put a stake in the ground. I think we've been clear, and look, we are well positioned to be -- we've got 18 hotels that clearly have a strong leisure.

And if you look at what's happening for us in Orlando in Hawaii and certainly Key West that we share, I mean we're seeing really aggressive certainly performance there and we will continue to look. There are markets that we're underrepresented. Phoenix comes to mind, parts of Texas. Clearly, we'd like to continue to expand our footprint into and into Florida.

At the same time, that's an overbought trade right now. I think some of the pricing is quite aggressive. I do have intellectually have a hard time with whether you can generate the scale and the return and the cash flow on an on some of the baby resorts but we'll see we'll see how that unfolds over time. This does remind me 10 plus-years ago, I've been around for a long time, when the focus was on lifestyle hotels in New York, and I've cited this example but I think it's a real example.

And that was the -- there was this excessive focus on buying those lifestyle hotels in New York and I -- as we now fast forward and look back, I don't think that trade really worked out for a lot of people, particularly at the prices that people were paying. And so we will continue to evaluate the portfolio. We are confident that upper upscale and luxury hotels in top 25 markets in premium resort destinations. We have a great footprint on resorts now.

We'll look to expand that selectively but I think it's got to make economic sense. I think the message we'd like to send is we have so many embedded opportunities within our portfolio. I think Bonnet Creek is just a great illustration of that. And our basis there, given where we're trading is about 300,000 a key.

We've got 350 acres of 1,500 room resort, a world-class golf course. We're expanding the footprint there for the meeting footprint in addition to the optionality that we have from a leisure standpoint. We think that's a wise and prudent investment, and that's going to yield superior risk adjusted returns for our investors.

Anthony Powell -- Barclays Investment Bank -- Analyst

Got it. Thanks. And maybe switching gears to pricing, the leisure pricing has been very strong across the country, or should we be saying prices well above '19 levels. But in group in B.T., I think prices are at '19 or slightly below.

Is there an opportunity for you and others to push pricing on corporate group in transient a bit more or are you more focused on getting those parts of the business back in volume?

Tom Baltimore -- Senior Vice President, Corporate Strategy

Yeah, it's a great question, Anthony. I do think over the intermediate long term, there's going to be more pricing power in this business. And I have to believe that demand is going to outpace supply, certainly given the amount of scarring and pain that occurred through this pandemic. And we're pleased as the -- some of the stats that Sean outlined, I think really demonstrate that operators are being disciplined on pricing and we're getting close to '19 levels.

And we're still at rev pars that are 20%, 30% below in some in some cases below '19. So I do think that there's going to be a much better opportunity for real pricing power and margin growth in this industry, which we have not seen. We certainly did not see the end of the last cycle. So we are encouraged as we look out.

Anthony Powell -- Barclays Investment Bank -- Analyst

Great. Thank you.

Operator

Our next question comes from the line of Smedes Rose with Citi. You may proceed with your question.

Unknown speaker

Hi. Good morning. This is Steph on for Smedes. Can you just talk about what you're seeing on labor costs? I think in March you cited $70 million in cost savings from a reduction in hotel staffing.

And then, as you think about that, what percent do you think could be offset of the rising labor costs by the reduction in staffing needs?

Tom Baltimore -- Senior Vice President, Corporate Strategy

Yeah, it's a great question. Let me answer the first part. What we've said is we've spent a lot of time, and a huge credit to Sean and our asset management team and the other men and women on the Park team, of sort of reimagining the operating model. So we're confident that we've been able to take out $85 million in impermanent cost.

It's about 1,200 FTEs approximately across both hourly and management, and we're confident that that will -- huge and certainly deliver huge benefits for shareholders as we move forward. The one benefit that we have on the labor side is, obviously, being 60% union and with those costs already largely baked in. We're not seeing some of the same challenges on the labor front. We are seeing it at our non-union hotels.

Key West is an example, where labor -- and certainly Orlando, pockets of Florida that are a bit more challenging, but we're not seeing huge increases on the on the labor front. Let me handed over to Sean if he's got additional comments he'd like to make.

Sean Dell'Orto -- Executive Vice President and Chief Financial Officer

Sure, Tom. Thanks. And certainly what Tom mentioned is really kind of our doing in limiting positions. But you think about some of the operating model elements or whether it's housekeeping or changes [Inaudible].

Those things are still evolving. It's hard to kind of sit there and, I think at this point, put dollars at it. We still need the right mix to come in through to kind of test some of these changes to the standards out and the take rate and everything there. So that's kind of evolving and a work in progress but we're certainly confident that we'll kind of add the additive to the $85 million Tom discussed as we move forward and ramp back up.

Unknown speaker

And then just as a follow up, in your prepared remarks you mentioned a focus on value-added transactions in projects but it looks like you reduced capex to $56 million for maintenance projects this year. Just going into 2022, how do you think about spending there and are there any major projects on the horizon?

Tom Baltimore -- Senior Vice President, Corporate Strategy

Yeah, we -- as we mentioned, obviously, the Bonnet Creek, we have reinstated both our expansion there of the meeting footprint for the Waldorf as well as the Hilton. So that's north of $100 million project there that is that is underway. Very confident that that's going to be a huge success for us. We're also going to be renovating that -- the meeting space as well as some of the guest rooms as well.

We've also completed recently in the meetings space at the Hilton San Francisco. The -- we've also done some a partial renovation of the Tapa Tower at Hilton Hawaiian Village. So you'll see that those costs really ramping up both on the maintenance side as well as on the embedded ROI side for the Park portfolio. We've got a number -- DoubleTree San Jose is one that we're pretty far along in planning and plan to convert that to a Hilton as well.

Just another example.

Unknown speaker

Thanks.

Operator

Our next question comes from the line of Neil Malkin with Capital One Securities. You may proceed with your question.

Neil Malkin -- Capital One Securities -- Analyst

Hey, good morning, everyone.

Tom Baltimore -- Senior Vice President, Corporate Strategy

Good morning, Neil.

Neil Malkin -- Capital One Securities -- Analyst

Hey. I was just wondering if you can give an outline just kind of what you see for group outlook pace or how do you want to qualify it for your San Francisco and Chicago markets heading into, again like I said, 2022.

Tom Baltimore -- Senior Vice President, Corporate Strategy

Yeah, if you think about San Francisco, 2022 citywide I think are -- right now in the books about 34 events, about 620,000 room nights. And if you look back to '19, which I think was an all time high, at about 1.2 million room nights. So clearly continuing to ramp up. I think JPMorgan proceeding with the healthcare conference is great news and I think as you continue to get more people back to, say, returned to office and back to business travel, we fully expect that market will continue to thrive.

As we look out in Chicago, and our corporate group there, our group pace is about 83% of the 2019 levels. That's about 168,000 room nights, plus or minus. Citywides are also, I think, of over 700,000 room nights in Chicago, so very encouraged. Chicago is really held up better since we reopened back in June of this year.

So we're encouraged about both of those markets as we move forward.

Neil Malkin -- Capital One Securities -- Analyst

Appreciate that. One of the things that the group guides, the group focused -- owners saw was pretty significant pickup from second quarter to third quarter on the group side. Obviously significantly below 2019 but compared to the first and second quarter, I would say a pretty pretty significant step, a step function higher. And that also came with it pretty stronger than expected, I think, [Inaudible] overall.

I was wondering if you can comment on what are the spending habits as those groups -- kind of bread and butter groups started to come back? Are you seeing the same amount of willingness in terms of like minimum spend? Any different or changes in preferences for like banquets or group gathering sessions? And also I think it spills into the other revenues, which have been just on fire and maybe you could shed some light on what's going on there as well.

Sean Dell'Orto -- Executive Vice President and Chief Financial Officer

Yeah, Neil. This is Sean. I think in the end that the groups are generally behaving consistent with what they were doing pre-pandemic. I mean, obviously, the overall participation is lower than '19 as they show up.

But I would say as we're kind of project out and plan for an event, I think generally it's been pretty consistent that we're underestimating the participation. So the good news is they are showing up. And with that planning and everything else, I think too, they're also showing up and realizing they want to a bit more than they had planned for, too. So I think you're seeing some kind of you know incremental spend when they're on site.

They're not necessarily -- participants are necessarily leaving the assets a lot and going out and doing -- seeing alternative outlets or F&B experiences. They're kind of mostly -- a lot of times staying in the hotels. Clearly, that's happening with the leisure side, too. So we're seeing a lot of benefit in outlets in certain areas there.

Certainly some out-of-room spend where we have the amenities like golf at Bonnet. Everything else are seeing upticks as well and that's been consistent as we've been open and kind of good kind of elevated operations or elevated demand levels in different parts of this pandemic.

Neil Malkin -- Capital One Securities -- Analyst

OK. Thank you.

Sean Dell'Orto -- Executive Vice President and Chief Financial Officer

Yeah.

Operator

Our next question comes from the line of Gregory Miller with Truist. You may proceed with your question.

Gregory Miller -- Truist Securities -- Analyst

Thanks, Gordon. Just one question from me. Hey, as we look to Thanksgiving and the December holidays, I'm interested in how your cold weather markets may fare this season and we expect the pent-up leisure demand, that may be shifting back up north. So it's possible.

Could you share your initial expectations for markets like New York City this year relative to pre-pandemic years.

Sean Dell'Orto -- Executive Vice President and Chief Financial Officer

Yeah, Sean -- Greg, this is Sean. For New York specifically, clearly a good news story happening up there, opening up the asset early October and has really ultimately exceeded our expectations as we looked at our reopening models for October. And as we get into November, December, clearly the holidays are part of the success of this asset. And so what we're seeing right now for New York is Thanksgiving's pacing around 80% of '19 levels with sell-outs for Wednesday and Thursday with 80 or flat.

So feeling good about how we're coming into that week. Earlier than that, we have a sell-out around the New York City marathon. This coming weekend. So I think again November is shaping up pretty well for the asset.

And then when you get into -- in December, we're seeing -- certainly in a weekend, some real good strength there of about 60% to 70% committed occupancy with the asset. So I think we've got a good base and I think we continue to see positive pickup volumes at or above the comp set in the market there. So feel good about New York and, obviously, feel really good about our resort areas where you would expect strength around the holidays. Hawaii is looking good despite the governor kind of putting a pause and a little bit of pause and hesitation on booking the holiday travel.

We're now seeing the pickup, as I mentioned my remarks, starting to see some more pace picking up week over week just like we were seeing pre-Delta. Hawaiian Village right now is a little bit behind, I think, without the Far East traveler there. It would simply comes in strong around the holidays. It's still tracking a little below '19 levels, but Lake Aloha on the Big Island is just going to be incredible.

It's going to be about 50% higher rates than '19. So that's a combination of the demand and rate strategies are being deployed there by the team, so kudos to them. So again together combined, those two we'll make Hawaii a really good market for us. And then Florida, just across the board, Miami, Key West, Orlando, all great markets for us for the holidays.

Thanksgiving week is going to be supported by some sporting events in Orlando. The Waldorf is pacing ahead of '19 levels with a 60% increase in rate. The [Inaudible] Complex is seeing pace up 85%, Waldorf up 125% to '19 on the Christmas New York New Year's Eve week. So just incredible and then Casa, I mean just remains on a tear.

We're looking at rates that are $500 to $600 higher than '19 levels around the holidays around, especially the Christmas and New Year's Eve holiday. So that basically translates to $100,000 of incremental revenue per day at the hotel.

Gregory Miller -- Truist Securities -- Analyst

That all sounds great. I appreciate all the detail there, Sean.

Sean Dell'Orto -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Our next question comes from the line of Chris Woronka with Deutsche Bank. You may proceed with your question.

Tom Baltimore -- Senior Vice President, Corporate Strategy

Hey, Chris.

Chris Woronka -- Deutsche Bank -- Analyst

Good morning, guys. Hey, good morning, Tom. So hear your comments about potential -- when we think about acquisitions maybe some kind of joint venture where you can contribute an asset, marked to market on that and then add more liquidity for acquisitions. And so the question of that is just on any potential acquisitions, is this something where, given where we are in the recoveries, come along faster, gaining steam, you're going to go for something that's yielding right now that doesn't have a ton of story to it? Or do you -- or would you prefer to do things that have a story to them and value add?

Tom Baltimore -- Senior Vice President, Corporate Strategy

Yeah, it's a great question, Chris. And as you know, it's -- we're talking hypothetically here. I think in a perfect world, I think finding something that is cash flowing but that we could plug in our best practices and our asset management team and the men and women on our design and construction team for some value-add over time would probably create the most upside and clearly with something within in place cash flow is certainly attractive to us as we look out, but we'll evaluate. There are sometimes really deep turns that can make sense but that's really better suited I think in many cases for private equity than it is for perhaps a REIT capital structure.

We'll be thoughtful. We're not -- we don't feel the need. People -- I think it's important for listeners to remember, we've bolted on 18 hotels from the Chesapeake deal. We have tremendous embedded opportunities within the portfolio whether it's the DoubleTree in San Jose, the DoubleTree in Crystal City at the front door of the Amazon campus there.

Literally at the front door Hilton Hawaiian Village on the long-term we're getting a site entitled that we've got an option to that allow us to do a sixth tower. That's a few years out as we sort of look out. The Hilton Santa Barbara that we converted, we up-branded. Bonnet Creek, which we're also up-branding to a Signia.

I mean there's huge upside within this portfolio, so we want to be really thoughtful about acquisitions. We're going to grow. Make no mistake that as this recovery continues take unfold -- as it unfolds that Park will be a participate -- a participant both in buying assets in addition to continuing to recycle capital within our current portfolio.

Chris Woronka -- Deutsche Bank -- Analyst

OK. Very helpful. And then how do we think about the puts and takes next year when -- with international coming back both ways inbound, outbound for you, guys. Florida, big beneficiary this year of state domestic and then you're going to get more international inbound next year.

Is there a way to think about from a -- maybe a rate perspective what happens when we kind of see more Americans going abroad and more international guests coming into your markets maybe other than Florida?Is there any way to just directionally think about that?

Sean Dell'Orto -- Executive Vice President and Chief Financial Officer

Yeah, first of all, I think it's going to bode very -- really well for not only the industry but I think for Park in particular. If you think back to '19, we had inbound international of about 79 million and outbound from the U.S. was about 100 million, plus or minus. I may be a little off, Chris, but I don't think much.

And so when you think about what's happened here during the pandemic, those 100 million travelers, plus or minus, we're all really focused on U.S. or the Caribbean. Some going international but largely those that were traveling were focused more kind of U.S.-centric. I think as we're coming out of the pandemic, we're going to begin the journey to get back to the way things were.

Meaning you're going to see more and more of those international travelers coming back into the U.S. and think about where they want to go. They're not likely going to San Antonio. They're looking -- and I love San Antonio, but they're looking more for New York, Boston, D.C., Chicago, San Francisco, in addition to the Florida, Miami, all of those markets where Park is incredibly well positioned.

So we see this being really positive for us, but I also think we can't lose sight again of the pent-up demand. We've been through two years of hell. And I think this sort of revenge spending and this desire to get out and reclaim and recapture people's lives is only going to continue to accelerate. And for an industry that -- in our market where you've got less supply risk, we think we finally benefit from having our supply exposure to about 1.7%, I think among the lowest in the lodging reach, given our footprint.

But we think that that's only going to bode well for us in having more pricing power. And I didn't even talk about Hawaii. Keep in mind Hawaii. Historically it's about 30% international.

Of that, about 60% of that -- 63%, I think to be exact, relates to coming out of Japan. While Japan -- Japanese have been coming the last 30 years consistently 15% to 17% of that market. So now you've got two years where they haven't visited, so I think Hawaii gets the double benefit. Getting more and more penetration coming from the U.S.

in addition to seeing the international, particularly the Asian trade, beginning to really ramp up. As Sean said that's probably second quarter. I mean we think we'll have a really strong holiday but we think, as you look out to Hawaii, and particularly now with international travel in six markets in particular, driven largely by Japan, will continue to only benefit that market as we move forward. So I -- the International is nothing but a significant tailwind for the industry and I think for Park in particular.

Chris Woronka -- Deutsche Bank -- Analyst

OK. Very helpful. Appreciate all the thoughts. Thanks, Tom.

Tom Baltimore -- Senior Vice President, Corporate Strategy

Thank you.

Operator

Our next question comes from the line of Robin Farley with UBS. You may proceed with your question.

Robin Farley -- UBS -- Analyst

Great. Thanks. Most of my questions have already -- good morning. How are you? Most of my questions have really been covered.

I guess, maybe just one follow up and you sort of touched on a little bit, but just in terms of the transaction environment. Low interest rates out there and some types of buyers that can be much more leverage than a public REIT. I guess is that -- do you foresee that kind of making it difficult maybe to make some acquisitions that that you might be thinking about?

Tom Baltimore -- Senior Vice President, Corporate Strategy

Yeah, there's -- it's a great question, Robin. There's no doubt there's the world is awash with cash and I think that's only going to continue. And clearly the lowest cost of capital wins and there are, what I would call, some of the trophy real estate, if you will. And we're seeing some of that trade at sort of eye popping numbers at these 2 million -- 2.5 million a key.

Not likely to be where Park is going to be trading and where we're most interested. So I think you'll find whether that's the sovereigns, the high net worth, some of those family offices perhaps will be in the hunt for some of that. We're confident just given our relationships that we'll be able to find very attractive opportunities and we'll have to be selective, we'll have to work a little harder but historically my lead teams have always done well in finding off-market and those deals that are that are compliant. We also will have the ability as our stock continues to recover to use OP units and have the optionality of being able to structure deals that can also be attractive for certainly the types of sellers.

So we'll use everything in our toolkit to make sure that we're creating value for shareholders.

Robin Farley -- UBS -- Analyst

And I'm also thinking about your comments about the asset value and what a significant discount you're trading. In the past, you have actually sort of given targets for asset sales. Any thought that -- I mean if the public market's not valuing them and you'd get more value by selling them, would you think about actually giving a target for asset sales?

Tom Baltimore -- Senior Vice President, Corporate Strategy

Yeah, it's another fair question. All options are on the table. I mean we are committed to creating shareholder value and as I've said, we'll get paid either by the public markets or the private markets. And we're serious about that and we will continue to work hard and create value for shareholders.

And we do expect as the recovery takes hold and continues to accelerate, I think some of the fears and concerns of the New York, San Franciscos, and Chicagos of the world will certainly subside. These are great cities of the world that people that are betting against them, in my humble opinion, are making an unwise bet. These cities are certainly going to be coming back.

Robin Farley -- UBS -- Analyst

OK. Great. Thank you very much.

Tom Baltimore -- Senior Vice President, Corporate Strategy

Thank you.

Operator

Our last question comes from the line of Bill Crow with Raymond James.You may proceed with your question.

Bill Crow -- Raymond James -- Analyst

Great. Good morning. Thanks.

Tom Baltimore -- Senior Vice President, Corporate Strategy

Good morning, Bill. How are you?

Bill Crow -- Raymond James -- Analyst

Good. Thank you. Quick clarification and then a question. A clarification on the Hilton Midtown.

Is it fully open? All 1,800 open? I had read that it was going to be partially opened.

Sean Dell'Orto -- Executive Vice President and Chief Financial Officer

No, all rooms are open, Bill.

Tom Baltimore -- Senior Vice President, Corporate Strategy

And, Bill, as Sean said, and we fully expect a near, if not a full sellout, for the marathon this weekend. So it's ramping up better currently than any of us thought. And I've been in New York three times here in the last couple of weeks and the city is coming back. It's coming back to life and it's great to see.

Bill Crow -- Raymond James -- Analyst

OK. Did -- the question really -- just take a crack at the labor question from kind of a different angle, which is an aside from union contracts, how much do you think labor has -- labor wage rates have to rise over the next year to get us back to an equilibrium where we're not talking about a deficit in man hours and increased turnover relative to history?

Tom Baltimore -- Senior Vice President, Corporate Strategy

Yeah, it's a -- as always, Bill, thought-provoking and a reasonable question. It's a tough question because I think you got to think about individual markets. If you look at New York as an example or any of the other major cities, I mean we're we're paying pretty significant wages, as you know. Well north of $30 an hour, plus or minus, in any of those cities.

So some of that pressure that we have and some of the turnover that I think some of our peers and others are seeing, we're just not seeing it, their seniority, their recall rights. If anything, we would -- we think there's an opportunity to continue to work hard to right size to find the right balance. They're going to be continued advances in technology whether it's digital key and other applications. And these changing customer preferences have got to be factored in.

We all know it. It's expected and I think that's going to continue to be a benefit for the industry. There'll be some pain pockets as we unfold. Where I think we see more of some of the labor challenges are markets like a Key West or Orlando, where there were some leased labor and other opportunities where you don't have the affordable housing.

And it's just a tougher market there and you are seeing rages wages rise. But the other side of that, as Sean pointed out, I mean if you think about just third quarter, our two Key West assets, RevPAR was up 88% over 2019 levels, and that's only going to continue to accelerate. Part of that is pent-up demand and people wanting to reclaim and recapture their lives. So I don't know whether, Sean, you've got some other insight on the labor side but I -- it's one that we'll study some more, Bill, and then follow with you offline and just make sure that we answer your question appropriately.

Bill Crow -- Raymond James -- Analyst

Yeah, appreciate it. It seems like the smaller mid-sized markets may have more pressure from competition from Amazon warehouses and things like that and maybe some of the large markets. So, OK.

Tom Baltimore -- Senior Vice President, Corporate Strategy

Yeah, we're not seeing it, Bill. And the one thing I'd say, Bill, and you and I both been around a long time, I just think the one thing is we look out, I think there's more optimism. I think there's more optimism for having pricing power, for having margin growth. The supply growth, as you look out even over the Park portfolios, I think I said earlier about 1.7%.

There's some -- while it's been a tough, tough, nearly two years, there are reasons for having real optimism as we move forward. I think finally we get back to this being a certainly more attractive business than it has been from a hotel ownership in the pas, certainly in the near term in the last couple of years and certainly the end of the last cycle.

Bill Crow -- Raymond James -- Analyst

Right. We can all use some optimism. Appreciate it. Thank you, Tom.

Tom Baltimore -- Senior Vice President, Corporate Strategy

Thank you, Bill. Stay well.

Operator

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn the call back over to Mr. Tom Baltimore for closing remarks.

Tom Baltimore -- Senior Vice President, Corporate Strategy

We appreciate the opportunity to visit with all of you today. Look forward to seeing you in person in the near future. Although I know the upcoming Navy will be virtual, we will be on the road and have been over the last several weeks and really be reaching out to many of you to get together in person. So stay healthy and look forward to seeing you soon.

Operator

[Operator signoff]

Duration: 68 minutes

Call participants:

Tom Baltimore -- Senior Vice President, Corporate Strategy

Sean Dell'Orto -- Executive Vice President and Chief Financial Officer

Rich Hightower -- Evercore ISI -- Analyst

David Katz -- Jefferies -- Analyst

Anthony Powell -- Barclays Investment Bank -- Analyst

Unknown speaker

Neil Malkin -- Capital One Securities -- Analyst

Gregory Miller -- Truist Securities -- Analyst

Chris Woronka -- Deutsche Bank -- Analyst

Robin Farley -- UBS -- Analyst

Bill Crow -- Raymond James -- Analyst

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