Park Hotels & Resorts Inc. (NYSE: PK) Q1 2020 Earnings Call Transcript

Park Hotels & Resorts Inc. (PK) Q1 2020 earnings call dated May 11, 2020

Corporate Participants:

Ian Weissman — Senior Vice President Corporate Strategy

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

Sean M. Dell’Orto — Executive Vice President, Chief Financial Officer and Treasurer

Analysts:

Smedes Rose — Citi Research — Analyst

Anthony Powell — Barclays Capital — Analyst

Richard Hightower — Evercore ISI — Analyst

David Katz — Jefferies — Analyst

Patrick Scholes — SunTrust Robinson Humphrey — Analyst

Bill Crow — Raymond James — Analyst

Neil Malkin — Capital One Securities — Analyst

Brandt Montour — J.P. Morgan — Analyst

Chris Woronka — Deutsche Bank — Analyst

Robin Farley — UBS Investment Bank — Analyst

Lukas Hartwich — Green Street Advisors — Analyst

Presentation:

Operator

Greetings, and welcome to Park Hotels & Resorts Inc. First Quarter 2020 Earnings Conference Call. [Operator Instructions]

It is now my pleasure to introduce your host, Ian Weissman, Senior Vice President Corporate Strategy. Thank you. You may begin.

Ian Weissman — Senior Vice President Corporate Strategy

Thank you, operator, and welcome everyone to the Park Hotels & Resorts first quarter 2020 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 will discuss certain non-GAAP financial information, such as adjusted EBITDA. You will find this information together with reconciliations to the most directly comparable GAAP financial measure in this morning’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 discuss the state of Park as a company, including the proactive steps the company has taken to weather the pandemic and the team’s deep experience during these difficult times. We will also provide an update on Park’s current operations and the various contingency plans in place as well as a brief review of our first quarter 2020 operating results and thoughts on the industry moving forward. Sean Dell’Orto, our Chief Financial Officer will provide detail on corporate level measures that have been taken to ensure liquidity and viability for an extended period of time in addition to providing more details on our cash analysis. Following our prepared remarks, we will open the call for questions.

With that, I would like to turn the call over to Tom.

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

Thank you, Ian, and welcome everyone. I want to start by saying that I hope all of you that are listening are safe, healthy and well. It goes without saying that this is an unprecedented time for all of us. Life as we know it has been disrupted in an unimaginable way. And we are all adjusting and doing the best we can to navigate this crisis.

Since our last call in early March, the impact of COVID-19 on the hotel industry has completely changed the operating landscape with stay at home orders issued across the nation, many of which are still in place. First and foremost, our top priority has been ensuring the safety of our employees and guests at our hotels as well as our corporate employees in the midst of the fluid state ordinances and changing regulations.

This has involved constant communication with our operating partners, reviewing local guidelines and restrictions and discussions with local union partners and the implementation of various proactive measures at our properties. Our hearts are with those at our hotels who either are facing health or financial risk or have temporarily lost their jobs as a result of this pandemic.

Second, I want to remind listeners that Park has a very experienced management team and we have navigated several disruptive events throughout our careers, including natural disasters, 9/11 and the great recession. Nothing has been more challenging than our current operating environment. However, once the scope of the global pandemic began to unfold domestically, Park was among the first hotel REITs to pivot and respond accordingly by shoring up our balance sheet and aggressively cutting costs across the portfolio, a trademark of a seasoned and experienced team.

John will provide specifics later about our actions to increase liquidity and minimize our cash burn rate. But I would like to personally thank our banking group for their ongoing support throughout this crisis evidenced by the unanimous vote we received from a syndicate group approving the credit amendments we announced last week.

Overall, I have great confidence in our talented team of men and women as well as our essential operating and lending partners who have worked tirelessly to ensure the company’s viability and ultimate success throughout this crisis. This is a moment in time. And while admittedly, it is a very challenging one, it is one that will pass and we will get through it together.

We entered 2020 with three key priorities. First, our primary goal was to realize the synergies from the Chesapeake acquisition. Despite some of the broader industry challenges, we had already realized $20 million of the $24 million of expected year one synergies at the onset of 2020 and we’re confident in our ability to complete this goal in a normal operating environment.

Second, we remain focused on improving the overall quality of the portfolio through non-core asset sales. By February, we have completed two more asset sales totaling $208 million, while completely exiting out of international markets with the sale of our Hilton San Paulo hotel. Over the last two years, we have disposed of over 24 non-core assets for $1.2 billion, resulting in a significant improvement to the overall quality of our portfolio.

And finally, we were focused on reducing debt. Following the early $470 million of non-core asset sales, leverage was on track to be back to 4.2 times post the Chesapeake acquisition or down nearly half a turn since announcing the deal. Overall, we had made significant progress on key improvements to our company. And we believe our core 30 hotels, which represents 87% of our pro forma EBITDA and 90% of our overall portfolio value are as strong as any portfolio in this sector. We are confident that we have laid the foundation for long-term success.

Next I’d like to provide a brief update on Park’s current operating environment. Currently 22 of our 60 hotels remain open, yet many of our properties are operating at a significantly reduced capacity with consolidated towers and closed floors. In total, only about 15% of our 33,000 total rooms are available to guests. Majority of the hotels that remained open are either airport or suburban properties that are housing airline crews or special circumstance groups. A small number of our urban hotels are operating with extremely limited capacity to house medical-related demand.

We expect to resume operations at some hotels beginning in early June subject to easing of restrictions and near-term demand. More specifically, we are looking to indicators such as the easing of stay at home orders and our drive to leisure markets as well as the resumption of airline routes as we assess which hotels to reopen. While it is too early to quantify the pace of openings, medical solutions such as therapies and vaccines will undoubtedly accelerate the pace of the recovery.

Turning briefly to our first quarter results. We ended the quarter with a 23% RevPAR decline fueled by a 64% decline in March. From a segmentation point of view, both group and business transient revenues were equally impacted, down 26% each, while leisure was a negative 22%. Our contract demand was up 1% for the quarter. This is not a trend that has continued as the vast majority of international flights have been canceled and domestic air travel has slowed significantly.

Our resort markets performed slightly better overall with RevPAR down 16% on average as travel restrictions generally did not impact leisure travelers as early as they impacted business travelers or group attendees. Roughly 80% of our first quarter hotel adjusted EBITDA came from properties and resort locations, although this is no longer the case in the second quarter. Our airport and suburban assets also experienced less severe RevPAR declines, and this is a trend that has continued into the second quarter. However, as these hotels comprised only approximately 7% of hotel adjusted EBITDA during the quarter, their contribution is not significant.

Looking ahead to the second quarter, we are expecting to see a continuation of the trends we saw in April for the remainder of the quarter. Our portfolio RevPAR was down well over 90% for the month of April, which mirrors the Smith Travel data we have been seeing for urban and resort hotels at the upper end of the chain scale. While the duration and extent of the impact of the pandemic remains unknown, we expect April and May to be the low point with RevPAR declines of 90% or more and the second quarter overall to be the most challenged.

While it is too soon to forecast what hotel demand will look like once travel resumes, we do have some general themes. We looked at signs of improving conditions, we expect leisure travel to be the first segment to generate the highest demand, particularly in our drive-to-markets in Florida like Orlando, Key West and Miami. We believe the leisure segment will help to gradually fuel confidence in travel followed by a return to travel by business transient and association and social groups and then finally corporate group.

Overall, leisure-related revenues account for approximately 40% of our total revenues when considering that nearly all travel to our Hawaiian properties has some leisure component, although demand in Hawaii is heavily dependent on the resumption of airlift. At this time, we are not expecting normal airlift to return until the end of June at the earliest, and this of course is subject to change as things continue to unfold.

In terms of group demand for the balance of the year, group revenues are down approximately 55% with the second quarter a virtual washout, although at this point, the fourth quarter is holding up relatively well across several of our key markets. The situation obviously remains very fluid. So these numbers will most likely change as the path to recovery unfolds.

In general, we are expecting a different operating model overall for our hotels when travel resumes. We have been in constant communication with our partners at Hilton, Marriott and Hyatt about how the operating profile may change as hotels slowly begin to open back up. Based on these discussions, we do expect the brands to be accommodating and flexible as we reopen hotels and think about the various components that need to be re-imagined to accommodate social distancing such as food and beverage outlets or meetings and banquet programs and the changes that need to be made to emphasize our focus on guest and employee safety and cleanliness.

We are also expecting housekeeping to be altered in a way that provides guests with added assurance that their guest room is clean and sterilized. We could see a move-away from daily housekeeping service and an increase in contactless check-in. For example, such as Hilton’s Digital Key program. I have long been a vocal proponent of the need for a rebalancing between brands and owners. If there is a silver lining in this current crisis, I would speculate, this will be one of them.

The brands have not been immune to the value destruction of this pandemic. We have been very encouraged by the dialog we have had with our brand partners. We welcome a more balanced approach to branded hotels. And are glad to be part of the discussions of what this may look like. I look forward to sharing more with you on future calls.

And with that, I’d like to turn the call over to Sean.

Sean M. Dell’Orto — Executive Vice President, Chief Financial Officer and Treasurer

Thanks, Tom. Over the last several weeks, we have proactively undertaken several key initiatives to improve the company’s liquidity and capital position, including fully drawing down on our $1 billion revolver in March, suspending our quarterly dividend following the payment of our first quarter dividend, slashing our 2020 capex budget by roughly 75% to $50 million, reducing our corporate cash G&A by 13% and working with our operators to aggressively cut hotel expenses by approximately 75% during the month of April when a majority of our hotels were suspended.

Taking into account the significantly reduced cost structures of the hotels, short-term carrying cost for benefits for furloughed hotel employees and corporate G&A and debt service, we developed a burn rate estimate of approximately $70 million per month based on an extreme scenario where all of the company’s hotels suspend operations. Taking the $1.2 billion of cash currently on the balance sheet against this burn rate estimate, we believe we have approximately 17 months of liquidity under the most extreme scenario.

From a capital structure standpoint, I’m very pleased to report that we successfully amended our revolving credit facility in term loans, which were finalized last week. In the amendment, we accomplished three key objectives. First, we secured the extension options for the revolver, pushing its maturity to December 2021. Second, we suspended the testing of financial covenants through Q1 of 2021 with some additional flexibility to accommodate our portfolios recovery after the suspension period over the subsequent four quarters and into 2022. And third, we built in flexibility to manage the business and access capital markets should we need additional liquidity. I would like to personally thank the members of our bank group for their continued support of the company and their efforts to provide us with this critical amendment as we navigate this extremely challenging environment.

That concludes our prepared remarks, we will now open the line for Q&A. To address each of your questions, we ask that you limit yourself to one question and one follow-up. Operator, can we have the first question please?

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Smedes Rose with Citi. Please proceed with your question.

Smedes Rose — Citi Research — Analyst

Hi, good morning.

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

Good morning, smedes.

Smedes Rose — Citi Research — Analyst

Hi. You talked about just a little bit in your opening remarks, changing or a different operating model going forward. And I guess, just kind of bigger picture, could you maybe talk about changes, if any, to your strategy that here before now had been — you talked a lot about overall sort of grouping up of assets including the Chesapeake properties? And then just as a kind of a follow-up to that, could you maybe talk about how you see labor costs trending as the business reopens?

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

Hi, Smedes. I appreciate the question. Regarding our core strategy for Park, intermediate and the long-term, that certainly hasn’t changed. We think that obviously this portfolio, as we mentioned in our prepared remarks, obviously, we continue to reshape and improve it. Our top 30 hotels, which obviously are bourbon convention center resorts, the operating metrics of that I think play very well against our peers and again account for about 87% of our EBITDA, about 90% of our value. We see long-term value in that core portfolio that hasn’t changed.

Obviously, as you recall, when we were spun out, we thought given the natural advantage for some of our conventional hotels. It really made sense to group up and anchor our business with group and layer in contracts and we could therefore yield out our transient more efficiently. We certainly believe in that long-term. Obviously, given the unprecedented circumstances that we find ourselves in today, we obviously are going to need to adjust.

As Sean mentioned in his remarks about obviously drive-to-markets, there are about 12,500 of our rooms that are effectively in drive-to-markets where we think in the interim as we work our way through this recession and ultimate recovery that we can certainly be competitive. We certainly are going to have to continue to find ways to fill rooms, given the fact that group is likely to lag.

As we said in our prepared remarks, we would expect leisure to come back followed by corporate transient. And then obviously, group and corporate group would lag that. The reality is a lot of it depends on what happens vis-a-vis medical solutions here if we get continued therapies and if we get vaccines. And obviously there is a global race underway, which certainly can also expedite the pace of the recovery as well.

As it relates to labor, we are spending a tremendous amount of our time working with our operating partners, our peers, and I really think across the industry in thinking about what’s important as we reopen. Clearly safety and cleanliness are of paramount importance to our guests right now. Social distancing will continue to be an issue as we unfold. And as I mentioned in my prepared remarks, you can see a scenario where the housekeeping model changes. And perhaps it’s — there’s no housekeeping during stay overs.

You can see the room service model being altered. You can see the food and beverage being reduced significantly. Our obsession here is making sure that both the safety and cleanliness issues are addressed, but also that we figure out a way during the crisis to rightsize the model. The business has been out of balance and I think there is a unique opportunity now. And I do think the brands are very open to finding a better balance as we move forward.

Smedes Rose — Citi Research — Analyst

Thank you.

Operator

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

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

Good morning, Anthony.

Anthony Powell — Barclays Capital — Analyst

Good morning. Just on my question between brands and owners and operating costs. Do you need to make progress on reducing operating cost of your hotels before some of them open? For example, markets like New York where you closed, do you need to have that kind of in place or can there be an interim tenants back there?

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

Yeah. Anthony, you hit obviously the most difficult given the fact that the pandemic, the epicenter of it in the U.S. has been in New York. Clearly that’s the most challenging operating environment, as we all know. It has underperformed this last cycle pretty dramatically. We clearly expect that that hotel, New York Hilton, probably would not be opening until late second quarter, third quarter. And clearly, rightsizing and finding the right operating model will be a critical component of that certainly before we reopen that asset.

Many of the other assets we have work plans already in place. We can reopen in a matter of days. But you got to make sure that one, the stay at home orders have been lifted, any other local requirements have also been relaxed, the corporate travel policies have sort of reopened, visibility into current demand, what’s on the books, what’s in the pipeline, cancellation risk, know that will go into the process as we reopen. We tried to be very transparent in the added disclosures so that both investors and analysts understood exactly where we are today.

We also understand that we have very detailed reopening plans, and we’re also in a position to reopen in a matter of days, assuming the demand justifies. And when we reopen, that will be a slow ramp-up. We don’t expect that we’ll be reopened to full capacity. So you got to rightsize the business model to make sure that it makes economic sense.

New York, of course, will be the most complicated just given the devastation that’s occurred and the imbalance. There has been too much supply in New York. It has underperformed. There’s no rate growth, there is no rate integrity. We’d have to make sure that the model makes sense in New York before we reopen the hotel there.

Anthony Powell — Barclays Capital — Analyst

Got it. Thanks. And on Hawaii, there has been some headlines about restrictions and other kind of, I would say negative kind of the sentiments towards travel there. What’s your sense of the government and other authorities position on getting travel restarted to Hawaii? Is that high on your priority list? And could there be a delay there if you take kind of anti-travel approach?

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

You know Anthony, it’s a great question. Hawaii is also very complicated. It’s a — obviously it’s depending on the airlift, but there is a 14 day quarantine in place for any visitor, I think it was implemented in late March. We understand that that could be lifted at the end of May. Possible reopening could occur in say mid-June. I think some of the airlines are planning to begin operations in sort of early to mid-June, which is an important component. But I think Hawaii is a great example of what’s happening in our great country right now.

You’ve had about 630 cases approximately of COVID-19 across the islands. You’ve only had 17 deaths, any loss of life is horrible and very sad. But in context, 17 is a very small number based on what we’re seeing in other jurisdictions. And you’ve got unemployment that’s rising at 40% to 50%. And you have a state deficit that’s at 1.5 billion and rising. And so at some point we need to find a better balance. And I suspect as part of this that the Governor’s leadership and encouragement from other business leaders and other men and women that we will begin to reopen.

I can say if you look historically at Hawaii visitation 8.5 million to 9 million, obviously north of 60% of it coming out of the U.S., about 17% of it coming, 1.5 million visitors coming out of Japan. That’s been pretty consistent for almost 30 years. There is a lot of pent-up demand. So we’re actually very encouraged as we think out beginning third quarter, but certainly fourth quarter that Hawaii could surprise to the upside. Obviously, we need the leadership there to reopen and to begin that process. But I want to provide an incremental detail, so people understand this is a very common situation of balancing. Really the health risks with the economic realities. and I think that will serve as a catalyst to begin, perhaps even accelerate their reopening process there.

Anthony Powell — Barclays Capital — Analyst

Thank you.

Operator

Our next question comes from the line of Rich Hightower with Evercore ISI. Please proceed with your question.

Richard Hightower — Evercore ISI — Analyst

Hey, good morning, everybody.

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

Good morning.

Richard Hightower — Evercore ISI — Analyst

Hope you’re doing well?

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

Hope you’re safe?

Richard Hightower — Evercore ISI — Analyst

Yeah. Thanks, Tom. All good here. So back to the question earlier related to the relationship between owners and brand. So everybody is operating in an environment right now, sort of in extremis and you make decisions in that light that might change as the world reopen. So Tom, how do you view some of those extreme cost cutting measures that are allowed by the brands at this particular moment? How do you view that evolving over time as the world reopens and amenity creep or whatever you want to call it? What’s going to be the balance 12 months from now, 24 months from now versus what we see today and what do you envision if you could expand on that?

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

Yeah. Rich, thank you. I think it’s a great question, and I think it’s also not going to surprise you and the other listeners that the business has been out of balance. I would respectfully submit that certainly the brands, based on their need and all the actions to raise additional liquidity, their business models don’t work, they don’t have a healthy owner community. And I also think that they also got a bit of a wake-up call when your business model doesn’t work, your owners have no revenue, therefore no fees. And so I think that there is a natural reset and a reboot, if you will, that’s really forced them and owners to come together and talk about ways that one we can address the immediate concerns, which are safety and cleanliness which should got to be addressed as quickly as possible. And there is probably an incremental cost to raise that level of cleanliness.

So therefore, how do we take out the incremental cost. I think housekeeping is unnatural where you’ve got really a consensus building throughout the industry that perhaps no additional — you get a clean room, it’s certified of whatever ways the brands are going to use, they’re after that. Perhaps there has been no — no one else enters your room for the duration of it stay unless you opt-in some other benefits as part of that. You should think about food and beverage, the same issue. Room service typically is not profitable in a very high cost center.

We have the New York Hilton, given our Urban Kitchen, certainly one of the first to eliminate room service in more of a delivery and using biodegradable and other environmentally-friendly measures there. And that’s a model that I think you could see that getting expanded throughout. Think of buffets probably go away, food and beverage. As we think about social distancing, hopefully that’s temporary and interim and not permanent, but how do we then serve and implement that in that kind of framework given what we’re likely to see over the next few months.

I think it starts with first and foremost, Rich, because the industry has been so decimated and because everybody is feeling, I think everyone recognizes, we have to come together to try to rightsize the model. I hear some of my peers talk about going on offense. In my view, what’s most important in this industry right now is making sure that we can rightsize the operating model so that it’s a sustainable and economic and makes economic sense for all the stakeholders, while at the same time addressing those primary concerns that the traveling public is going have. We need to provide an environment where they’re going to feel the trust and the safety and then they will begin to come back to us.

Look, we all believe in this great country. We know they’re going to come back. We know we’ll get through this. Obviously, vaccines, medical solutions will accelerate that. But there’s no doubt in order to get through this, we’ve got to really begin to address a number of these issues. So I would expect the year out, cost per occupied room to clean up, to clean the hotel would be less. I would expect the brand amenities have the arms raised that I’ve been saying for years, that you’ll see that begin to pullback.

You would expect that other costs in the business and more flexibility, more access of digital Key and bypassing the front desk, all of those things make sense. They address customer concerns, but they also begin to get cost out of the business. So that’s real focus and where I think a lot of the energy needs to be. There are task force that are being swarmed, a lot of dialogues that are occurring, owner groups have come together, the brands have come together. So we are — there is an open dialog that’s occurring at multiple levels in the business that I find encouraging. We have to deliver. But I think given the stark reality where we find ourselves right now, we have to address these issues.

Richard Hightower — Evercore ISI — Analyst

Okay. That’s very helpful color, Tom. Maybe shifting gears for a second, just putting on the lens of the hotel transactions market, such as it is right now, where do you sort of — and maybe comparing to the deals for Park that closed in February. Where do you see the impact to unlevered asset values between sort of mid-February and where we sit today? Any color there?

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

Yeah. It’s a great question. Rich, you know that we’ve had a lot of success in selling our non-core. It was a real priority since we were spun out. Really proud that we sold 24 assets and clearly the 14 international. And reminding listeners, those were deals in South Africa, two in Germany, seven in the U.K., Brazil, a joint venture in Dublin. Every one of those deals had tax. We go tons of hair on them, but we were able to successfully get through that. It allowed us to continue to reshape this portfolio.

Continuing to sell non-core is still a priority for Park. We have been engaged with all of the natural buyers, sovereigns, private equity, family offices, all the types of buyers, private equity, all of those that can move quickly and also that don’t need debt and that can close off cash. I would say that to be brutally honest, I’d say that the COVID-19 discount gap is too wide right now. I think you’d see sellers would probably like to sell with a 10%, perhaps even 15% discount depending on their individual needs. But I think buyers are looking for somewhere north of 30% even 40%. So I think there’s plenty of liquidity trying to get in this sector, recognizing that now is a good window to begin to build up a portfolio, but I think the gap is too wide to really expedite any sort of transaction. You should see the number of deals that have blown up here in the last few weeks.

I think in the next couple of months as we begin to get more operating clarity, you will begin to see that market reopen. And clearly a priority for Park will be to continue to explore non-core asset sales. We have significant liquidity. We’ve got runway room. We don’t feel the need and desire to sell at huge discounts and to sell it at values that don’t make sense for our shareholders. So we will be thoughtful and we’ll wait for more clarity before we really think a lot of those deals will start to move forward.

Richard Hightower — Evercore ISI — Analyst

Great. Thanks for that color, Tom.

Operator

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

David Katz — Jefferies — Analyst

Hi, good morning, everyone. Good to hear everyone’s voices. Tom, obviously the commentary around balancing between owners and brands is the topical and engaging. I wanted to just follow on that from the perspective that the third-party management industry is sort of moving in a direction and we have seen instances with other owners where assets have switched from brand management to third-party. Just broadly speaking, how do you think about the dynamics in that market and sort of driving competition, if you will and where that’s really all headed one day?

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

It’s a great question, David. I’d say a couple of things. One of the real benefits of the Chesapeake deal, again, it gave us brand and operator diversification, it gave us geographic diversification. On the operator side, we now have eight operators getting that best intel, those best practices, seeing the things that are happening not only across the brand operators, but those independent third-party operators is only something that I believed in and the team here at Park has believe in. And that competition is a good thing.

I think if you think about our portfolio, we are natural situations, where having brand group, big convention center hotels or a big resort hotels with national sales and complicated purchasing power, where the brands makes sense. There are other hotels that are more nimble whether they’re an autograph or a lifestyle brand, don’t have the big group component. We are clearly having an independent operator is perhaps the rightsizing that manager for that business opportunity. We are constantly looking at that. That’s one — again, one of the benefits that we have of having a very diverse portfolio.

So I think that will continue to evolve. I have been saying for many years having worked for Hilton twice and having worked for three of the Marriott companies that I think there are natural areas that the big brands should stay in. And I think the Convention Center hotels and luxury hotels, resorts are really I think better suited for their wheelhouse versus those more nimble opportunities that can occur elsewhere. And I think you’re just going to see that continue to accelerate as we unfold.

David Katz — Jefferies — Analyst

Got it. Thank you very much.

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Patrick Scholes with SunTrust. Please proceed with your question.

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

Good morning, Patrick.

Patrick Scholes — SunTrust Robinson Humphrey — Analyst

Hey, good morning. There’s some industry chatter out there that we could see many hotel rooms in major markets, especially in New York, convert to affordable housing or homeless housing at the highest and best use. What are your thoughts on that? Thank you.

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

I think it’s a fair question. I would think markets like New York would probably be the most likely. As we all know, New York has badly underperformed and badly underperformed because it is too much supply. If you think back nine years ago, 2011, New York had 141 what we call super compression gates where market demand was over 95%. And I think we entered 2019 with about 30 and we were forecasting 2020 in sort of low-single-digits.

The amount of supply, and the brands are largely responsible, has decimated that market. And I think given the carnage of what’s happening there operationally, in the fact that it probably remains close, it would not surprise us in part if you had many hotels that never reopened. And perhaps converting those to other uses makes a lot of sense, particularly given the incredible need right now and those could make more economic sense. You would need in many cases the brands to cooperate and work. And I would encourage them to do so to help reduce the supply, the pain and suffering that’s occurring dominance in that market.

Patrick Scholes — SunTrust Robinson Humphrey — Analyst

I guess taking the follow-up step on that, would that possibly happen to one of your hotels in New York? Thank you.

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

We only — we own the New York Hilton, obviously the second largest hotel in the market and obviously one of the big convention center hotels, one of the three there. We think we have a natural role there that over the intermediate and long-term it can regain its place and be a significant contributor and be a strong component. Obviously in this environment right now, as I said earlier, given the devastation that’s occurred and being at the epicenter of the COVID-19 here in the U.S., we would expect that that would be among the last in our portfolio to reopen. But again, we will continue to manage some of the health what we hear both from the Governor, from the city, from health providers and get a sense for demand patterns as the reopening process begins in New York.

Patrick Scholes — SunTrust Robinson Humphrey — Analyst

Okay. Thank you.

Operator

Our next question comes from the line of Bill Crow with Raymond James. Please proceed with your question.

Bill Crow — Raymond James — Analyst

Good morning.

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

Good morning, Bill.

Bill Crow — Raymond James — Analyst

Good morning. Sticking with New York for a second. We’re hearing some office brokers that the tenants are leaning towards a post-Labor Day return to the office. And also hearing that the Broadway may not reopen until January or possibly Christmas season in December. I’m just wondering if those dates were true, how does that impact your decision to restart, I think you said towards the end of June on the Hilton?

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

Yeah. Hey Bill, it’s a great question. Let me clarify. I thought I said that most likely New York, we would be opening in sort of third quarter, just given the reality now. I think the data point that you brought out was terribly important. I think first and foremost you should go look at what we’re hearing from the Governor, from the Mayor in terms of their stay at home orders and how that process unfolds. And then what happens with both travel patterns and booking, what happens locally in terms of, to the point you made about the Broadway opens later whether the company is continuing to allow people to work from home, which as you can understand given the devastation that’s occurred there. I mean as I said, I would expect that New York Hilton would be among the last in our portfolio to open.

We have been working over many years and continuing to rightsize that business. As you know, there is very little food and beverage. We have there the Urban Kitchen, we have a room service delivery. So there are number of things that have been underway in that hotel. It’s still a very tough operating environment. And as I said earlier, if you have the city remaining close, and let’s take your timeline that’s extending to third quarter, fourth quarter, I think it only drives home the point that there are probably many operators who — owner-operators who have levered up at 65%, 70% or more would probably don’t reopen.

Park has the luxury of having a large diversified portfolio of significant liquidity. We will get through this. We will get to the other side. And it gives us a lot more optionality. But in terms of finding other sources of demand, everything is opened depending on what universities do. They are reaching out and talking to hoteliers about taking students depending on how they reopen or when they reopen.

So there are pockets of demand. Clearly, the group component will lag, as we’ve talked about. And in this case, New York is probably the market that will be the toughest over the next several months for all the reasons that we’re all aware of.

Bill Crow — Raymond James — Analyst

Yeah. I appreciate that. And as a follow-up and so as specific to New York, but how does the decision making process change opening or going back away as closing the hotels based on the — whether it’s a union hotel or a non-union hotel?

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

It’s a great question, Bill. I think it’s another benefit of having a large organization, having a portfolio of scale. The men and women on our asset management team have just done a phenomenal job. Look, the hospitality business that we all love and admire, we never clubs, right? We’re opened 365 days a year other than the natural disaster. Obviously, we get a global pandemic that none of us planned for. So we had to work tirelessly with all of our stakeholders, trying to find the right balance to close down. Obviously, we have shut down or suspended 85% of our rooms. Could not be prouder of the interface between our asset management team and our various operating, whether those are the brand partners or whether those are the independent management companies. And we have aid across our portfolio.

At the same time, we’ve now made the pivot to begin the reopening process. So we have work plans again developed in conjunction with our asset management team and our local operating partners. We look and try to anticipate what are the current state and local government regulations. When do we think they’re going to begin to relax. We can be up and running in most situations in a matter of days, and that’s not we expect days, but we also have to make sure that we’ve got visibility into current demand. What’s on the books, what’s in the pipeline, how do we think the ADR. We have to rightsize because we’re not going to reopen in full capacity. So you have to stage as to when and how you’re going to bring employees back to make sure that it makes economic sense.

That’s a little more complicated, as you would imagine on the union side. But I would say that our union partners have recognized the difficulty of the situation given the fact that many of them have significant reserves available through the health and welfare. We’ve also been accommodating to work through those types of issues. Of course the government, the government programs are providing unemployment on steroids has also been helpful.

So the good news is that people are getting bridged. None of us can go forever without revenue across industries. But I do think that we are as a nation beginning this reopening process and every city will have its own timeline, obviously the drive-to markets. Strong demand in South Florida in Key West where obviously we are well represented, in parts of California we think, obviously strong drive-to Orlando. So all of this fits together. But there is still going to be a lot of demand. There will just be certain markets that are going to be tougher to figure out and probably will be delayed. And I think New York again is going to be the most likely scenario there.

Bill Crow — Raymond James — Analyst

Okay. Thank you very much.

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

Thank you.

Operator

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

Neil Malkin — Capital One Securities — Analyst

Hey, good morning, guys.

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

Good morning, Neil.

Neil Malkin — Capital One Securities — Analyst

Just the first question I want to focus on the group side, obviously a pretty sizable part of your business. Can you give us a sense of what first half 2020 cancellations have re-booked either for the back half of this year or early next year? And then secondly, are there any indicators or things that you kind of look for that would allow you to see or be able to ascertain the likelihood that the second half of this year group reservations will actually wind up coming and not just cancelling later?

Sean M. Dell’Orto — Executive Vice President, Chief Financial Officer and Treasurer

Hey Neil, it’s Sean. Hope you’re doing well here. Just kind of to your first question about just kind of activity and re-booking. We had about kind of at a certain point in time about $130 million of room revenue from group. Again, problem there is with March through June that canceled. I would say about 40% of that is in various stages of booking, has booked or discussions going on right now. I would say the majority of that is beyond 2020. There might be some that’s re-booked into Q4, but I’d say majority is beyond this year.

There’s probably about 50% of that is kind of been — it’s kind of been in kind of a waiting stage, certainly could be booked in the future. Hilton — majority of this work is going through Hilton sales and marketing and in process. But we’re certainly hopeful that they’ll continue to place that back into our hotels in outer stages. In terms of how we think about the back half of the year, the governance [Phonetic] on the books haven’t changed dramatically. I think it’s probably consistent with others that talked about this where people are kind of have an option here and they can kind of wait to see how things materialize.

And so we don’t place a lot of faith in the back half. Certainly Q3 bookings had there they are for group. Clearly, as Tom mentioned, solutions around vaccines and medicines, treatments play a role into this and acceleration of that. How the brands come together and put the cleanliness programs in place that actually gives us advantage to retain those groups or attracting others for future business. But as we look at this and see how over the last several weeks and even months we’ve seen kind of a window year where 50 weeks out you start seeing degradation of the group business. I think that holds for a while. So I don’t think we have a lot of faith in what’s on the books right now in the back half of the year.

Neil Malkin — Capital One Securities — Analyst

Okay. Thanks, Sean, for that color. The other one I have is on, maybe just a broader longer term view. If you kind of look at the disparity between the coastal markets versus sun belt. Can you — you kind of look at the governors in those states and they’re willing to sort of get the economy back up and running, various hurdles, various things you’re hearing on a legislative side, political side. Is that — does that make you shift to rethink how you — what the portfolio looks like or what your allocation priority has looked like over the next five years or so in terms of maybe sun belt markets over the tough-to-operate unionized coast?

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

It’s a great question. I think the reality is that we think historically about this business is no different for Park than our peers. We really want to follow the demand. We are well positioned overall and we think through the fact that we are in center city, iconic assets, impossible to replicate. We’re probably today trading 185,000 key plus or minus and to rebuild our portfolio replacement cost is somewhere probably north of $700,000 around from take Hawaii, there is San Francisco, LA, Chicago, DC, Boston etc. So it’s hard to imagine that we’re in a world where you still don’t have that significant job growth, and therefore those sources of revenue.

Having said that, there is no doubt that there are very investor-friendly markets; Nashville is one, Austin is another, although secret of Austin certainly out. You can see other parts of Texas over time, Dallas, some might say San Antonio, Houston always tends to sort of ebb and flow depending on what’s happening with oil. We’re now seeing the team there and that probably continues. Clearly, Florida continues to explode if you look at the population growth there. So I would say, you’d see a balancing. But at the end of the day, it really is about where is the demand, where are the barriers to entry and where can you generate the appropriate risk-adjusted returns.

Neil Malkin — Capital One Securities — Analyst

I appreciate the color. Thank you, everyone.

Operator

Our next question comes from the line of Brandt Montour with J.P. Morgan. Please proceed with your question.

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

Hey Brandt.

Brandt Montour — J.P. Morgan — Analyst

Hey, how are you? I hope everyone is well, and thanks for taking my questions. So I realize I might be splitting hairs here, but on the cash, the monthly cash burn estimate that you guys gave, just given that some of the larger brands even today sort of made it sound like nationwide trends in the U.S. may have may have bottomed here. Can you maybe just give us a cash burn estimate, a monthly cash burn estimate for me for April? Where you see it now if today’s trends continue into the future?

Sean M. Dell’Orto — Executive Vice President, Chief Financial Officer and Treasurer

Hey Brandt. Yeah, I mean, as we kind of looked at it, when we started out with it, we kind of had about a $90 million conservative estimate kind of in March if we try to pull this together. April, looking at April results, it’s kind of what’s driven us to what we reported today of about 70. And I’d say, of that, the 90 I would say, let me just clarify, 90 included the capex and 70 does not. We want to — it is something to look forward now, and as you guys are looking at it, I think we’ve kind of excluded capex. So it’s really about $50 million difference and $10 million of that really came from the hotel operating side.

So again, as we looked at our — our preliminary assets were based on talking with Hilton in great detail as we looked at the operating model and kind of a low occupancy level versus shutting down or suspending operations. I mean, we looked at various other proxies where we had our Caribe Hilton for one, we were shut down post-Hurricane Maria, we looked at kind of the carrying cost for that asset and we just triangulated around what we thought was a pretty good estimate with some occupancy and it’s kind of take a conservative view.

Knowing that April will be a great proxy for this given that April will probably the one where April and May certainly will have the state of 30 assets being suspended and certainly the ones that are open aren’t producing a ton of revenue, but certainly being profitable on a marginal sense. We ultimately come down to what we think is a good level here at $70 million a month of the burn rate. $50 million for the hotel side, kind of $10 million or $20 million for corporate level and debt service-related fixed costs. So I think we feel good about that. We do think that there is always room for improvement. We’re going to continue to do that. And May will be the next test for us, but I think that’s kind of how we look at it going forward.

Brandt Montour — J.P. Morgan — Analyst

Great. Thank you. That’s helpful.

Operator

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

Chris Woronka — Deutsche Bank — Analyst

Hey, good morning, guys.

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

Good morning. Hope you’re well?

Chris Woronka — Deutsche Bank — Analyst

Yeah. Thank you. Same to you. I was hoping to get your view on how directionally you think the recovery ultimately unfolds on the rate side, because I think what’s different this downturn versus prior ones, maybe not totally different, but just significant downturn, right, group and corporate they might continue for some time, but you might have pretty solid leisure demand, which a lot of times even went to the third-party channels, yet the brands have done a ton of work to build loyalty and get reservations directly. So how do you see that all playing out on the rate front? Do you think there can be any rate integrity as we start to see demand recover?

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

Chris, it’s a great question, and I’d certainly hope so. To the point you made, if you think back, in fact, this is the week that I rejoined Hilton four years ago to partner with Sean and the team and spin out Park. If you think then, Hilton had 53 million members in their loyalty program. I think now they are at 106 million plus or minus and they’re getting north of 60% of their occupancy from members. I think Marriott is somewhere in the 140 million range. So when you think about the strength of the brands and the access that they had to those customers to induce demand, to have direct conversations and to be able to stimulate, you hope that and their desire same as our desire to make sure that we are getting the appropriate and highest possible rate that we can. I do think that there is an opportunity there.

However, if you look historically in this business, in terms we have to raise the bottom and people heads in beds and trying to fill at any price. I think given the devastation given the fact that people are working together and understand and revenue was so critical here that hopefully we’ll have more rate integrity. I would also say, when you think about the recovery, a lot of it’s going to depend on the medical side. As we know right now, it really is about safety and cleanliness and trust. Brands and well run brands and we have them in our industry, they’re about trust and problems. So I think they understand the need to address those immediate issues. But I have to believe, as Warren Buffet said, don’t bet against America. We will get through this. And in fact we have this global race underway to find the medical solutions, they really are the game changer because once we have those in place, race is a lot of a fear. It’s so much fear today. I think people want to get out and want to get out of the bunker. You’re seeing it all over the country, you’re seeing the reopening process, it’s going to be uneven, it’s going to be choppy. But I do think that we could get back to ’19 levels. Wouldn’t surprise me if we were back in ’22. I know some push it out to ’23, ’24, ’25. We are not believers of that. We think that it will wrap up soon.

Chris Woronka — Deutsche Bank — Analyst

Great. I appreciate that, Tom. And just a quick follow-up. What percentage of your hotels in Florida are kind of drive-to demand?

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

I don’t have the Florida piece off hand right now. I would say about 12,000, 12,500, about 40% of our — overall of our rooms are in leisure markets. So that’s Key West, it’s Miami, that’s Orlando, Santa Barbara in California, LA, San Diego. You can make the case for Chicago. A wonderful city certainly in season where people are going to be driving to and gas is cheap. So I think where people may have done the normal commute of six to seven, eight hours that might get extended until again the medical solutions are in place and people feel a little more comfortable. I do think you’re going to have people accepting longer drives, but clearly there is significant pent-up demand for people to get out and certainly plan vacations with their loved ones.

Chris Woronka — Deutsche Bank — Analyst

Sure. Very good. Thanks, Tom.

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

Thank you.

Operator

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

Robin Farley — UBS Investment Bank — Analyst

Great, thanks. This maybe is a little too early to ask, but do you see with all the changes going on in the world that maybe there is opportunity for consolidation among lodging REITs?

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

As you know, Robin, I’ve certainly being among the most vocal advocates who I’ve known over decade. We are laser-focused on the priorities that we’ve outlined. Cash preservation, our burn rate, shoring up the balance sheet, working with the brands and our operating partners to make sure that we can rightsize the business as we reopen. It would not surprise me, but you will not see Park in that dialog right here in the near-term. But it wouldn’t surprise me coming out of this depending on the individual situations of teams on companies whether they chose to find the dance partner.

Robin Farley — UBS Investment Bank — Analyst

Are you saying Park not interested in those discussions on either end of that, is that correct?

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

Park is not interested in that at this time. We are laser-focused on all the initiatives that we’ve outlined. Laser-focused on getting through the recession so that we are well positioned when the recovery begins.

Robin Farley — UBS Investment Bank — Analyst

And then maybe just one follow-up. You talked about the transaction market for assets and you talked about kind of waiting to sell some non-core things because you’re not in a hurry, you don’t need to sell at a big discount. Do you have any thoughts on like are there opportunities for assets that you might want to buy that are cheaper now and maybe on your radar screen?

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

Yes. But again, we are more focused on the balance sheet and cash preservation and rightsizing the operating model. I think there will be plenty of time as the process unfolds for single assets, small portfolios that may be available, but not a focus for Park at this time to be a buyer.

Robin Farley — UBS Investment Bank — Analyst

Okay, great. Thank you very much.

Operator

Our next question comes from the line of Lukas Hartwich with Green Street Advisors. Please proceed with your question.

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

Hey Lukas.

Lukas Hartwich — Green Street Advisors — Analyst

Good morning.

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

Good morning.

Lukas Hartwich — Green Street Advisors — Analyst

Hey, good morning. I’m just curious, Tom, do you have any thoughts on the potential for a lasting impact on hotels in the end as a result of this pandemic?

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

As I said earlier, Lukas, I mean, obviously, we are all living through an unprecedented circumstances that none of us planned for. You see the devastation that’s occurring and the ultimate shutdown that we’re all living through which has never happened before. I believe in our great country, I believe in our American spirit, I do believe we’ll get through this. Clearly there are going to be industries that are going to be disrupted, possibly impaired. I do think as we think about lodging and the role that we play, lodging survives. I don’t know about listeners, but I can speak from my own experience being on so many Zoom calls and Webex. I can’t wait to the days that we could have board meetings and industry meetings, in-person, I can’t wait to be able to resume the normal life for vacations and business travel that we all appreciated. Everywhere, all the people that I’m talking to feel the same way.

Clearly in the interim, life is going to change and it’s going to get adjusted as we work through making sure that people are safe, the cleanliness issues are addressed, social distancing is adhered too. But when we get on the other side of this, people are excited about beginning to resume their lives. No doubt there will be secular industries where I think there will be some permanent change. I do think there are certain markets in logic where there is too much supply, New York, we’ve talked about extensively in this call, where there are hotels in New York and other markets that probably will not reopen and perhaps alternative uses will be the best outcome for them.

Lukas Hartwich — Green Street Advisors — Analyst

Great. And then just maybe thinking out a couple of years on the transaction market functioning again, I’m just curious, do you think there will be an increased risk premium applied to hotel real estate? Do you think cap rates will be permanently wider relative to other asset classes as a result of this? I mean it’s the third downturn in a row now where it’s just been a severe impact to hotel fundamentals? And perhaps, the private market pricing is historically not reflected the risk of retail real estate. So I’m curious, do you think there’ll be a lasting impact on cap rates and valuations?

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

I do not, Lukas. And I would also say, as you know, I mean, rates have been coming down for a long time. And look, rates are going to remain low indefinitely. And so when you think about those pensioners and think about those retirees who need yield, real estate in particular, hotels provide a wonderful alternative for that. I don’t think that’s going to decline. Obviously it’s been a tough environment the last 20 years, but there is still significant value that can be created, both through the public markets, the private markets, and there has been no shortage of inbound calls and discussions that we’ve had. There is plenty of liquidity looking for hotel real estate.

Lukas Hartwich — Green Street Advisors — Analyst

Great. Thank you.

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

Thank you. Stay safe.

Operator

That is all the time we have for questions. I’d like to hand it back to Tom Baltimore for closing remarks.

Thomas J. Baltimore — Chairman of the Board, President and Chief Executive Officer

Thank you very much. It was great to talk with all of you today. Stay safe, be well. We look forward to our next earnings call. And hopefully we can meet in person at some point over the next few months.

Operator

[Operator Closing Remarks]