Greetings, and welcome to Park Hotels and Resorts Inc. First Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Ian Weissman, Senior VP, Corporate Strategy. Thank you, Mr. Weissman, you may begin.

Thank you, operator, and welcome everyone, to the Park Hotels & Resorts First Quarter 2024 Earnings Call. Before we begin, I would like to remind everyone that many of the comments made today are considered forward-looking statements under federal securities laws. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed and we are not obligated to publicly update or revise these forward-looking statements. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements. Please refer to the documents filed by Park with the SEC, specifically the most recent reports on Form 10-K and 10-Q which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements. In addition, on today's call, we will discuss certain non-GAAP financial information, such as FFO and adjusted EBITDA. You can find this information together with reconciliations to the most directly comparable GAAP financial measure in yesterday's earnings release as well as in our 8-K filed with the SEC and the supplemental financial information available on our website at pkhotelsandresorts.com. Additionally, unless otherwise stated, all operating results will be presented on a comparable hotel basis. This morning, Tom Baltimore, our Chairman and Chief Executive Officer, will provide a review of Park's first quarter performance and update you on our 2024 outlook. Sean Dell'Orto, our Chief Financial Officer, will provide additional color on first quarter results, Q2 and full year guidance and an update on our balance sheet. Following our prepared remarks, we will open the call for questions. With that, I would like to turn the call over to Tom.

Thank you, Ian, and welcome, everyone. Before we begin, I would like to take a moment to acknowledge and remember former Senator Joe Lieberman, who served on the Park Board since January 2017. Senator Lieberman was a great American, a wonderful Board member and a dear friend. I wish to convey my heartfelt condolences to the Lieberman family, and I know I speak for the entire Park Board and management team when I say that his wisdom and integrity will be greatly missed by all of us. I am pleased to report another incredibly successful quarter marked by outstanding performance across our portfolio as demand trends improved across all segments, bolstered by the strategic investments made in Key West, Orlando and Hawaii, in addition to other prudent decisions we've made over the past few years. We remain laser-focused on achieving the highest returns on our invested capital with our ROI pipeline providing the groundwork for outperformance in 2024 and beyond. Having invested nearly $300 million of capital last year, we are targeting an additional $260 to $280 million in strategic investments this year as we seek to unlock the significant embedded value within our portfolio. We also believe the decision we made last year to exit the 2 Hilton San Francisco hotels meaningfully improved our balance sheet and operating metrics and changed the narrative for Park. Through these efforts, we were able to return $630 million of capital to shareholders last year. And as we continue our momentum in 2024, we are excited about the growth potential in our portfolio and focused on maximizing returns for shareholders. Turning to first quarter results. RevPAR in Q1 increased a sector-leading 7.8%, which was 50 basis points above the high end of our Q1 guidance range and also exceeded Smith Travel's reported upper…

Thanks, Tom. Overall, we were very pleased with our first quarter performance. Q1 RevPAR increased an impressive 7.8% year-over-year with occupancy up 350 basis points to nearly 71% for the quarter, and average rate higher by 2.5% over the same period last year. Hotel revenue was $618 million during the quarter and hotel adjusted EBITDA was $168 million, resulting in hotel adjusted EBITDA margin of 27.3%, 190 basis points above the same period in 2023. Q1 adjusted EBITDA was $162 million, and adjusted FFO per share was $0.52. First quarter results were positively impacted by double-digit RevPAR gains in several key markets, including Key West, New York, New Orleans and Chicago while ongoing strength in Hawaii drove our stronger-than-expected results. In addition, margin outperformance was also aided by approximately $4 million of state unemployment tax refunds received at both of our Hawaii resorts and $5 million of relief grants awarded to our 3 Boston properties. Excluding these items, first quarter hotel adjusted EBITDA margin still expanded by approximately 40 basis points. Turning to the balance sheet. Our current liquidity is approximately $1.3 billion, including $400 million of cash, while net debt is currently $3.5 billion. Our net debt to adjusted EBITDA ratio on a trailing 12-month basis has improved significantly to just 5.2x. Overall, our balance sheet remains in excellent shape with a focus on extending near-term maturities while maintaining sufficient liquidity and optionality to execute our strategic initiatives. With respect to our dividend, on April 15, we paid our first quarter cash dividend of $0.25 per share. And on April 19, our Board approved a second quarter dividend of $0.25 per share to be paid on July 15 to stockholders of record as of June 28. The dividend translates to an annualized dividend yield of 6% based on recent…

[Operator Instructions] The first question comes from the line of Floris Van Dijkum with Compass Point.

So really good report, obviously, a little puzzling the initial reaction here by the market. But one of the things that I find fascinating here, obviously, your expectations for cash flow and EBITDA has increased, but you're still not getting, based on your guidance, back to 2019 levels of same-property EBITDA. Although if I'm not mistaken, I think your first quarter EBITDA this year actually surpassed 2019 on a same-property basis. Can you maybe talk about some of -- where the latent upside appears to be in terms of your EBITDA recapture in particular, talk -- maybe talk about some of the upside potential on your urban assets where your occupancy still appears to be lagging 2019?

Yes, Floris, a lot to unpack there, but I think you really hit the nail on the head. It's -- look, you're seeing and I think our first quarter is a great example. I think sometimes people sort of overly focus on sort of Hawaii, but you noticed, obviously, we had really broad-based and acceleration in both urban and in our resort markets as well. So we're still 500 basis points below, I believe, plus or minus in occupancy from pre-pandemic levels, but that continues to accelerate. And as we look across the portfolio, we're incredibly encouraged. I know that there are some concerns about second quarter in sort of April, and April is sort of isolated and probably best that I sort of addressed some of that now. And obviously, April is trending to about negative 1%. But that's really, we believe, our softest month in the entire year. It's our softest group month as well. We're about 3.7%. But as you sort of look out to May and June, we see a real acceleration. Looking at group pace in kind of May and June, we're probably in the 8% to 9%. We're looking at Seattle being above 15% in RevPAR, D.C. up probably in the 10% to 11% range; Boston, 8% to 9%; Chicago kind of 5% to 6%. And if you think about Casa, obviously not a clean comp since it was closed, but up really a whopping sort of 900%. So I think it's embedded in your question that the acceleration is -- and the recovery is accelerating, and it's broadening, and we certainly continue to see that in our portfolio. So we're very encouraged as we look out. And obviously, we've given guidance at 3% to 5% here in the second quarter, feel good about that. A little frustrating to see the early response in the market. But I think once people sort of dig in and understand a little better, we are very, very confident as we look out for the balance of 2024.

Great. And Tom, maybe if I can follow up on Hawaii. You talk about -- obviously, Hawaii Village, I think had $51 million of EBITDA in the first quarter. I mean you annualize that, I mean, not a fair assumption, but you're at a run rate of close to $200 million of EBITDA on 1 asset. That's some companies that produce that. But if you think about the air uplift and the Japanese tourist demand, how much is that driving some of that occupancy gain there? And do you see more upside there?

Yes. It's another great question, Floris. But let's -- if we sort of back up for a second, look, the last 2 years in Hawaii have been near record performance. We expect this year that is likely to continue, and if you look at pre-pandemic, the Japanese travelers accounted for about 18% to 20% of revenue. Last year, they were about 3.5% of revenue. And if you look year-to-date this year, it's only 3.5% of revenue. We think it probably gets back to 4% to 5% this year. So huge upside. So despite the fact that we don't have the Japanese traveler back, we're still generating -- and part of that is just obviously increased penetration in the U.S. market, but also in other international markets as well. So we are bullish on Hawaii. The other thing that we would note is it's near impossible to add additional supply. So when you think about that backdrop and we're working very hard to add a fifth tower there, which we think, obviously, there's huge upside as well. Now we're not done with the entitlement process, but certainly very encouraged as we look out. So thank you for the questions and the observation and your comment about we generate more EBITDA in Hawaii when you add both properties than candidly, most of our peers. It's startling, but if you're going to bet anywhere, we think bet in Hawaii is a solid bet.

Next question comes from the line of Smedes Rose with Citibank.

I mean, look, you've talked about this a fair amount, but I just wanted to ask a little bit more because the trends in leisure, I've spoken about by the larger branded companies. It sounds like they're kind of keeping the down tick in terms of expectations over the course of the year. And it sounds like trends in Hawaii are very strong, but I think I'm correct in thinking that kind of a middle-market property, kind of a lot of tour and travel, maybe a slightly more susceptible consumer. And I'm just wondering, it sounds like you're not, but might you -- or have you sort of factored in that that segment of the market might be a little weaker as we work through the year? Or is that already in your expectations? Or I guess just maybe a little more color on how you're thinking about leisure trends at this point?

Yes. I would say, if you think about the last couple of years and think about this year and what we saw obviously in the first quarter, take Hilton Hawaiian Village is a great example of north of 7%. And we're probably low to mid-single digit, we think, for probably the balance of the year. One, Smedes, one comment I'd make is this is not a lower-end property. It's nearly 2,900 rooms. Historically, we were averaging about 150 mid-market high-end weddings. It's not ultra luxury, certainly no doubt about that. But I think that's really part of the appeal, and part of the reason that it continues and has done so incredibly well. And as we noted, near record EBITDA over the last 2 years and certainly believe in trending in that direction this year. Some are looking at some of the leisure trends and obviously, Maui took an incredible blow and is recovering, but O‘ahu continues to be really strong and solid.

Smedes, this is Sean. I might add too, I mean your focus on -- your question is focused on leisure, but also consider that Hawaiian Village, especially this year has a good group component with it in the convention calendar, while again, not the primary source of demand in the business and the hotel per se in the market. But in the end, it's a strong -- very strong citywide calendar for Honolulu in Q3. And if we look at Q2 for our property specifically, we've got some great pace, up 50% in this quarter in May and 100% in June. So I think we feel that while leisure is certainly very important to the complex, we certainly have a different layer -- diversified layer in there with the group as well.

Great. And can I just ask one more? You have the sort of the 2 positive impacts in the quarter with the Massachusetts grant and the employment refund in Hawaii. Were those in your full year guidance as initially contemplated? And I think maybe this is more of a comment, but I think maybe the reason people are struggling a little bit with the stock is we're kind of backing that out, and I was just wondering what did you have embedded? And maybe are there any other things like that, that we should be expecting over the course of the year?

Smedes, so we have the Massachusetts -- we had the Massachusetts grants in our guidance. We booked those in February, but we did not have the Hawaii SUTA reimbursement that would occur in March, which is about $4.4 million. So as we think about the shift, Smedes, sorry, cutting you off there, but you think about the shift in EBITDA, what ultimately it obviously includes the SUTA, $4.5 million or $5 million in change or so of just operational fee from Q1.

Yes. Okay. I just -- I mean just -- because I think -- I mean, even if it was in your full year outlook, we wouldn't necessarily have kind of known that would hit in the first quarter on the Massachusetts thing. So I think people are naturally kind of back that out. So I think that's just kind of maybe what's going on a little bit. Although, look, it was obviously a strong quarter, even taking that stuff out. But I -- it's just kind of a comment, I guess, more than -- that's more than a question.

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

Tom, can you talk a little bit about your Miami renovation plans. When we last met, it sounded like you saw an opportunity to go bigger in that market, and maybe the timing is pushing a little bit to the right here. So can you just talk a little bit about the analysis and the opportunity you see there?

Yes. I would liken it in many cases to what we've just done in the Casa. It's an iconic property, it's oceanfront, it's South Beach. We see a great opportunity to reimagine that iconic asset. And if you think about what we're seeing already in Casa, not only is it incredibly well received and throwing out numbers in the second quarter, we expect we'll be up -- I think in May and June we were looking at a 900% increase in RevPAR, but we see that kind of upside with that, again, great real estate. So we continue to sort of investigate it, continue to study it. Carl Mayfield, heads our design and construction, certainly best-in-class, he and his team are working hard and working with local architects there and figuring out it's 3 buildings. It's about 393 rooms, approximately. Don't have it all scoped out yet, but it's -- it's something we're really excited about as we look out. And if you think about what we just completed in Bonnet Creek, we can't wait to really show the talents of the team and that extraordinary work that was done there. And then, of course, we continue to invest in Hawaii. And as we mentioned in the script, when you think about just the Tapa Tower there and the fact that we're already seeing a $60 increase in average daily rate. So we see considerable upside in Miami when you look at the last 20 years, what have been the 2 strongest markets or 2 of the strongest markets, certainly Miami and Hawaii have been too. And when you think about the ultra-luxury projects that are being contemplated, obviously, we're not envisioning Royal Palm would compete at that level, but there's certainly plenty of space right beneath that in a lifestyle hotel that we can really take it to the next level.

And maybe just for a follow-up, I would love your thoughts on the outlook for New York. It's been a positive surprise, a pleasant surprise, frankly, for a while now, would love to hear your thinking for maybe the balance of the year?

Well, if you think back for a second and New York was up 30% of RevPAR in 2023. We were up 11% in the first quarter. And I think supply is down about 9%. And you're obviously seeing -- there have been no new permits that they issued through the city council since December of '21, I think, plus or minus. And Airbnb is finally being regulated. So a lot of the illegal hotels are certainly not in supply. So New York is a more compelling market today than it has been. And if you look historically, look back 10 years plus or minus, New York certainly was among the strongest markets. So we're very encouraged and I would say, as you sort of look across the urban portfolio, and I think, obviously, evidenced by New York, but not just New York, you're seeing markets really broaden and begin to recover, which is a good thing and certainly benefiting the Park portfolio.

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

Nice quarter. So I wanted to drill down a little bit on group if we could. I think you said that your pace -- your second quarter pace up 11%. As you're negotiating some of these new group contracts, whether it's for the rest, I assume not a lot to go in '24, but more for '25 and beyond. What kind of I guess, room rate increase can you still get -- and also on the ancillary, right? You mentioned strength in catering, banqueting, -- are you still able to push through above inflationary price increases on those?

I think the general answer is yes, Chris. This is Sean. The -- as we look at kind of where group paces to -- as you kind of look to '19 on the rate side, we're about 111% over '19. And as you think about '25 pace, we're actually up another 114%. So I think as we look out, I think we continue to see the ability to kind of roll forward and charge groups more. I mean clearly, the operators quickly went as they came out of COVID to booking things and being happy to do so like kind of '19 rates, but then quickly realized they had a pivot as inflation was coming on strong to kind of be more dynamic with the rate pricing. And I think we're seeing the benefits of that now as we come through and seeing what I -- what we saw last year was about 5% to '19, and now we're seeing again 11% for this year and up 14%. So I think we are seeing the ability to further drive price with the groups. And on top of that, the out-of-room spend has been pretty robust as well. As we noted for Q1, we had some 11% banquet and catering, I think we continue to drive that pricing.

Okay. Very good. The follow-up question is kind of on the cost side. I think margin performance is pretty good in the quarter even if you kind of adjust for the onetime. How much visibility or, I guess, conviction do you think you have? I know labor, you have some that are on union contracts, but across the whole portfolio, is there anything we have to -- that's unknown for the rest of the year, whether it's insurance or utilities or anything else?

I don't think there's anything unknown. Clearly, people have marked the negotiations you noted on the CBAs and budgets and whatnot, planning for things like that. So I would say, I think potentially a -- potential upside from reinsurance. They did -- they got some great rate improvements from everybody last year with no major loss at least certainly domestically. So I think that's kind of changed the tables a little bit in favor of us, the insureds, to kind of have a better renewal this year so than last year. So I think that's something that we continue to kind of budget at a higher level rate than I think we'll actually actualize. I think that could be a positive going forward. We continue to appeal real estate taxes, which are up over 10% this year forecasted. So I think we can kind of get some -- not counting on them, but if we can get some appeal wins there, we'll get some benefits on the real estate tax side. But in the end, I think -- we feel good about the cost controls, the teams, as mentioned doing a great job working the operators to maintain those and manage those. We probably looked around 2.5% cost per occupied room across all operating expenses going in, and we achieved just about over 1%, 1.5% on that, even if you adjust for those one-timers. So I think we saw some benefits in Q1. I think we'd hope to carry that into the next couple of quarters, I think we'll still see some positions being added. But again, as occupancy goes, we'll see nominal expense grow. And we've certainly said 3-plus percent occupancy growth in Q1. We won't have markets in Q2, and therefore, we wouldn't expect expenses to grow as much either.

Next question comes from the line of Anthony Powell with Barclays.

I wanted to drill in a bit more on the CapEx and ROI projects. It seems like with the Hawaii renovations in Miami, and you may be at an elevated level in the next couple of years. Should we expect kind of this high $200 million range to be your CapEx spend looks for maybe '25 to '26?

Yes. I would say historically, Anthony, we've been sort of in that 6% range of revenue. As we said, we really believe that as we think about capital allocation priorities, we're still focused on selling non-core and continuing to reshape the portfolio. And I remind listeners that we've think about since the spin, we've sold or disposed of 42 assets just south of $3 billion. So it's a very different portfolio today than it was. And then our top 25 assets really account for about 90% of the value. And what we've concluded is it really makes sense to reinvest where we're making money and where there are real competitive advantages. So thinking about Hawaii as an example, Orlando, clearly, what we're talking about in Miami. A little bit of that is sort of catch-up too from the pandemic. So I don't know that we'll be in the $300 million range consistently, but $260 million to $280 million sort of makes sense given the priorities and what we're doing. We -- another tower, we want to renovate both at Hilton Hawaiian Village and Hilton Waikoloa and of course, another transformative project and what we want to do in Miami and you can see the early results that we're getting in the Casa Marina. Now probably, I don't think without question the best asset in Key West and really performing accordingly.

Got it. And maybe a follow-up on the asset sales. What are you seeing in the market right now in terms of just demand for assets, pricing and whatnot?

Look, it's choppy. We're not a distressed seller, Tom Morey, our Chief Investment Officer and his team are doing a fabulous job. And we're out in discussions and assets at various stages of the marketing process. But we're going to be disciplined. I think we've been able to demonstrate again, given the track record that I outlined, we've been able to sell assets, and we'll certainly get some asset sales done this year, and we'll use those proceeds to reinvest back in the portfolio, pay down debt or -- and depending on where we're trading, buy back stock. We bought back, obviously, 15 million shares last year, and if the NAV gap remains wide or widens, we clearly will be buying back stock.

Next question comes from the line of David Katz with Jefferies.

I wanted to just drill down just a little further on Hawaii because the commentary is quite positive. And we have heard and seen across our platform instances where inbound travel from Japan to Hawaii has been challenged by currency and cost. Are you seeing any of that? Or is it just a relatively small piece and the rest of what's going on kind of overshadows it?

Yes, it's a fair point. I don't think you can deny that the yen has certainly weakened. I mean if you think back to 2019, I think it was around $110 per U.S. dollar. And today, obviously, it's about $155 plus or minus, and then there's some fuel surcharges. So it's clearly a long gating, the recovery of the Japanese traveler. We had about -- if you think back to pre-pandemic, it's about 1.5 million visitors from Japan. That's been pretty consistent for probably the last 25 years, plus or minus. 2023, I think, was about 600,000. So you're about 65% down. This year, forecast is about 850,000 to 900,000, a huge credit to our operators and our asset management team. We've really worked hard to have less reliance. While we're still really anxious and waiting for the Japanese travel to come back to pre-pandemic levels, we can certainly be a little more selective and certainly yield the transient a little more efficiently than perhaps we were able to do in the past. And as I noted earlier, the Japanese traveler -- revenue coming from the Japanese traveler is only about 3.5% down from the traditional level of 18% to 20%. So we see that as really a tailwind, a future tailwind and continued growth. But despite that, we're trending towards perhaps our third record year in a row in terms of overall performance. And as you know, we're -- I think last year, total EBITDA of those 2 assets approaching in that $240 million to $250 million. So if you're going to bet anywhere, we think betting Hawaii is a solid bet. And as you know, given the constraints on new supply, certainly among the lowest, if not the lowest in any market in the U.S., Continental or outside.

Understood. And as my follow-up, I just wanted to touch on the cost of labor, if I may. I hope that feedback isn't coming on my side, and you can hear me okay.

Yes. We can hear you fine.

Okay. Right. Okay. Great. So there's been -- there's obviously been, over the past, call it, 6 to 12 months a lot of labor union activity, which I think is sort of a relevant dynamic. Are you expecting or factoring in further costs as a result of some of what at least gives the appearance of being out there?

Yes. It's a fair question. And as you can appreciate, we're not going to negotiate, obviously, publicly on the recorded line. I would just say this, that we've got about 60% of our business that associates are certainly contractually obligated to a CBA, we enjoy very strong relationships. We have always been able to work through those. Obviously, we do that primarily through the operators, largely Hilton, but not exclusively Hilton. And we're confident that in this environment, I don't think anybody wants protracted strikes or ongoing battles, particularly when our industry suffered through much -- so much during the pandemic. And so we -- when you think through it, we are cautiously optimistic and have we built in some cost to account for overall budget? As Sean outlined earlier on the earlier question that we got, for sure. But we're not overly alarmed, David, and I would encourage listeners to not be overly concerned about it.

I hope you appreciate the context of the question.

No, no. Fair question.

Next question comes from the line of Stephen Grambling with Morgan Stanley.

Perhaps as a follow-up to -- as a response to your first question from Anthony, as you look out at the positioning of the portfolio and take into consideration the upside that you've been seeing, from the success of renovations, but also taking into consideration changing demand dynamics, does that change how you're evaluating deploying into the portfolio or even redefining core versus non-core assets?

Yes. That's a great question. And the answer is yes. We're constantly going through and looking at the portfolio and we've done that. Again, as I said earlier, we've sold or disposed of 42 assets. And the vast majority of that were non-core, couple we were in a minority position at a small joint venture. I think about San Diego as an example where we ended up selling our interest there to Sunstone. We didn't want to be in a 25% interest. But we constantly look at the portfolio and we look at really where we're making money and where we think there's huge upside. Obviously, we believe that there's huge upside in Hawaii and hence, the investments that we've made and the others that we're contemplating. We obviously feel the same way about Key West, and we're seeing the results there. If you think about Orlando, Orlando and what we've done there, and I think people forget, you've got about 45 million visitors into Vegas. Obviously, you've got the entertainment and gaming piece, but you actually have 75 million visitors into Orlando. You've got the Epic Universe, $5 billion, hundreds of acres and a new park opening next year. You've got Disney coming out now and talking about $60 billion that they're looking to invest over the next 10 years. And we see all of that are real tailwinds and real benefit, plus you've got a top 5, top 7 convention center in Orlando as well. So we use those markets as examples, where we're certainly investing in assets that we own, and we're not looking to add new assets necessarily in those markets, but we're certainly investing in the ones that we have, and we see considerable upside. And compare that to paying a 15x multiple for an asset versus investing in our portfolio where we can generate mid-teens unlevered returns, and we're trading at a sub-10 EBITDA multiple. I mean, the math is pretty simple, and we think the benefit to shareholders is pretty strong, and we will continue to use that kind of discipline and thought process as we move forward.

Maybe as an unrelated follow-up. It seems like there's a lot of concern around the leisure consumer. And you touched on this a bunch, but maybe to ask the question in a different way, what are the things that you would be looking out for to try to assess whether there is some underlying pressure or deterioration in the leisure consumer in particular?

Yes. I think you can't look at a one size fits all, Stephen. I think if you -- if -- there's no doubt that those at the lower end of the socioeconomic framework are struggling the most, and you're seeing it. You're seeing it in all the credit metrics. You're seeing it in their spending patterns and -- but as you think about our customer base and that upper middle class, more fluent, incomes over $150,000 plus or minus, that consumer is still resilient. And another stat to look at is look at personal savings. I mean, I think last quarter, it was about $775 million. I think this quarter, it's down to about $670 million, plus or minus and about 3.2% of disposable income. So the consumer is still healthy. So when we look out from that standpoint and think about as we think about demand patterns and our guidance is we think 4% to 5.5%. I mean, we're not seeing softening. You see pockets of it. Obviously, April is down for us. But again, we believe that's our softest month of the year. You've got the holiday shift, you've got obviously slower group. You've got transient was less in April, but we see reacceleration as we look out in both May and June, and it's pretty significant. And so I think the worries, if you will, on the leisure front, I think, are a bit over -- overdone. We were never going to -- trees don't grow to the sky. And so when you saw the kind of growth that some of our peers had, those had to normalize. We didn't see that because in some -- in many respects, we don't have that type of product. But we're seeing lift in -- and we're seeing it again, in the urban areas, we're seeing it through the group. We're seeing it broadening and embedded in that our leisure trips as well. A lot of people going to New York, not all are going for business. Many of those are also going for leisure as part of that trip.

Next question comes from the line of Bill Crow with Raymond James.

What are your peers expressed some caution over June, you did not. And I'm wondering, given the importance of leisure demand in that month and the important -- importance of the month relative to the entire quarter, especially with the weak April, is June maybe the biggest pivot point on your ability to achieve guidance for the year? Is that really the month we need to kind of focus in on?

Yes, it's a great question, Bill. A couple of things. When you look at our mix, if you will. First quarter, we had obviously a group up about 15 -- 15.4% as we reported. We're trending at about 7% in second quarter and also tough comps. But if you think about third quarter, we're probably 16% to 18%. So third quarter is really strong for us. But as you unpack kind of May and June, we're seeing RevPAR probably in the 5% to 6% range. And then I gave some stats earlier where you've got Seattle and D.C., Boston, all high single digits or mid- to double digits in the case of Seattle. And then group pace for just May and June alone, I think it's around 9%. So to your point, that really gives us tailwinds and that reacceleration. So that answers your question. April was sort of at the bottom of the barrel, if you will, for us as we sort of looked out and saw our demand patterns, but very encouraged as we look out.

Yes, I appreciate that. A follow-up question, actually, for Sean, congratulations on the improvement in the balance sheet. I'm just curious, you're at 5.2 right now, net debt to EBITDA. As you think of the CapEx projects, the tower that you want to build in Hawaii, everything else going on, is it likely that we're going to be funding the additional capital with asset sales? Is that kind of the path that we're still on at this point?

I think that's certainly part of it, Bill, near term as we certainly continue to explore that the non-core asset sales are more focused that way in redeploying that capital between the balance sheet and the ROI projects. So I think that's a fair assessment in the near term. Obviously, the tower, we're working through to get the entitlements and everything else, and we're still ways away from being shovels in the ground, but that's, I think, for a future discussion as to kind of how we capitalize that.

It sounds like any acquisitions are probably a ways away at this point?

Yes, Bill, Tom here. I would not say a ways away. I just think as we look at the playing field, and I think the comment I made earlier, we think reinvesting in our portfolio where we can generate unlevered mid-teens returns investing in a great portfolio versus buying something at 15 times is really just -- it's a better way to create value for shareholders. We are focused on continuing to reshape the portfolio and sell non-core and reinvest, take that cash, pay down debt, reinvest back in the portfolio, buy back shares is also a better alternative than going out and buying assets. So we continue to underwrite, look, Tom Morey and the team are -- we're underwriting, occasionally bidding, but it's also got to make economic sense and it's got to be accretive. We just don't think that -- and we've seen some of our peers do it and pay up for some of the luxury assets. And I can't see one that's worked out so well is my view, Bill.

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

Is this -- is it fair to say the Phase I renovation tailwinds in Hawaii should offset the Phase 2 headwinds next year? And then, I guess, if we just put the 2 projects in aggregate, what's the EBITDA growth that you've underwritten to stabilization?

So Dori, I would say the first part, yes, as we saw with Tapa Tower, we did a 3-phase renovation. And as we've delivered the newly renovated rooms, we're able to get a premium rate on that. So as you think about Rainbow Tower, especially is the big driver rate, we're obviously right there on the beach. It's highly sought after. So -- to start out with the Phase I and take some of the rooms off the line to renovate them, I think we'll have a bigger disruption this year, then as we come through next year and have renovated rooms, we can charge a higher premium and then take the others offline. I think that kind of talks about what you're thinking right now on that. I wouldn't -- I'm not at this point really to kind of looking to give any kind of pure EBITDA numbers to that. I mean we talked about disruption being about $8 million for this -- this renovation phase. Again, we probably expect that certainly to be less next year as I discussed. But as we kind of look to recover, I would certainly think that we'd be getting a premium. And I wouldn't say that we underwrote any kind of ROI-type IRR, but we certainly expect a decent return on it just a rooms renovation.

Next question comes from the line of Jay Kornreich with Wedbush Securities.

I guess just one question for me. Just going back to the urban segment, which saw RevPAR improvement of 8% in the quarter, yet urban occupancy still sits at 63%. I'm wondering, how do compared to, I guess, the first quarter of '19 for the comparable portfolio? And what are the goalposts you see for urban occupancy getting to as the year progresses? But maybe also, is there any opportunity to see upside from pushing rate there as well?

Sorry, you were breaking up a little bit there. So if you can kind of repeat just briefly kind of what you're trying to...

Yes. Just commenting on urban occupancy upside in the first quarter, Urban RevPAR grew 8%, yet urban occupancy still sits at 63%. So just curious as to how much urban occupancy upside you see in 2024 and if there's additional opportunity to push rate on the urban markets as well?

Yes. I think if you think about just '19 for a second and kind of how we're performing, occupancy, overall portfolio is still about 500 basis points below '19, but ADR is about 15% over. So we -- look, there's still an opportunity to drive more occupancy. I'm proud of the team and the fact that we've been disciplined from a pricing standpoint, but there's definitely upside on the occupancy front. Obviously, some markets, I believe, are going to accelerate faster than others. I think New York is an example where we've seen that really take off. And part of that is given the fact that you've got better regulation and obviously, supply taken out. There'll be other markets that will be a little slower to recover for a whole host of reasons. But we -- we haven't given up. Some -- perhaps some have abandoned certain markets. I think New York is a great example. And it's not back fully to where it was, but it certainly is approaching and a more compelling market today than it has been, certainly over the last several years. So we use that. Obviously, Chicago is having a great year, City-wides had only a record. New Orleans continues to be solid and we saw the first quarter and we're -- another good year city-wides, Boston, D.C., certainly improving. There are other challenging markets out there. Seattle should have a very strong second quarter for us, but there are other markets out there that continue to remain challenged. L.A., San Francisco are two that will lag and probably lag for some time.

Next question comes from the line of Ryan Lambert with JPMorgan.

Ryan on for Joe Greff. Just kind of wanted to frame occupancy -- just wanted to frame the occupancy question a little bit differently. When you kind of look across industry segments, whether it's manufacturing or tech or consulting, do you have any sort of color there on how those are recovering and how meaningful those are for you guys to kind of make a full occupancy recovery?

I mean I think ultimately, as you think about those kinds of groups, you're kind of aligning with corporate negotiated type of demand. And that's certainly one has been from the business transient, and that's certainly been a laggard as you think about relative to '19, I'd say on the demand side, obviously related, we're still down, call it, 35%, 40% in that specific subsegment of business transient. We are seeing improvement in that, and we've seen some of that demand come back in the business transient side overall. We were, I think, outperformed our expectations for the first quarter. We're up 13,000 room nights about 3%. And that was across the board, including corporate negotiated as well as local negotiated and government. So we are seeing that kind of trickle back still. And I think it's certainly a good sign as we kind of look through Q2 into Q3. But it's -- I think there's certainly a ways to go there, and we certainly know professional services, Deloittes of the world, PwCs and the like are ultimately traveling less and probably will be for the foreseeable future. Remote work and return to office is -- has been coming back a little bit slowly too and ultimately helped the business transient. But I would say that in the end, we don't expect that to really fully recover. That said, at this point, that corporate negotiated segment is really about, call it, 5% of overall demand historically. So if it ultimately gets back to 80% of it was, I wouldn't say it's -- it's a big drag in the overall portfolio. I think we'll overcome that with other aspects of whether it's leisure or group.

That's helpful. And following up on sort of the capital markets discussion from earlier. In the past, maybe we've kind of heard management teams across the industry talk about the difference between large and small assets and wondering with what you're seeing in the rate environment right now, if that difference is starting to be less meaningful or if that's at all changed in your view?

Yes. I think it depends on the individual market, right? If you're in a market like Key West where you're already supply constrained and in our case, we've -- we've got Casa as an example of 311 rooms, I mean we're driving as strong a rate as anyone. There might be hotels that are a little smaller, doubt many that are larger. As you think about other markets, New York is -- and where we've got, obviously, a larger box, but if you've got the right demand supply balance and you've got demand generators and the tailwind and you've got multiple sources of demand, meaning you're anchored with group and then you can layer in your transient business more efficiently, I think the thesis that -- that you're always that a smaller hotel is always going to be more efficient. In theory, you would think that that smaller hotel has more pricing integrity, but that -- it's not a perfect story. And I think that we have demonstrated throughout our portfolio. And if you think about Hilton Hawaiian Village where you've got 2,900 rooms, and we run north of high 80s to 90% occupancy, and we can yield additional sources of revenue. It's done quite well for us, and you're generating significant cash as a result of that. So it's a really good question, but I think it really depends on the facts and circumstances. Those that argue that the smaller hotels are the only way to invest, I would vehemently dispute that and love to engage in a dialogue about that.

Thank you. There are no further questions at this time. I would now like to -- we have one more question from -- do you want to take it?

Sure, sure.

All right. This question comes from the line of Robin Farley with UBS.

Hopefully, this wasn't -- my line's gotten dropped 3 times from this call. So I think you already answered my question about what was included in your original EBITDA guidance. Just 2 other things. One is, can you clarify is there anything at all in your CapEx budget right now for Miami? Or would that not be anything in 2024? Any spend on that? And then also, you mentioned you expect some asset sales to be done this year. Is there a particular interest rate scenario that you need for that to happen or that you would need for your expectation to be met?

The predevelopment costs on Miami, as you would imagine, architects, engineers, other certainly design work. So there's work like that, but I would say not significant dollars being spent this year in '24. Regarding asset sales, we've sold in all conditions. Think back to the pandemic when we sold 2 assets in early San Francisco at record pricing in the middle of the pandemic. So it's -- we're not a distressed seller. We've set a target of at least $100 million in asset sales this year. We're confident that we'll achieve that. We'll be thoughtful about it. Clearly, uncertainty is the enemy of sort of decision-making. And for both buyer and seller until the Fed sort of makes its final decision, we think we all want to believe that the tightening cycle is over. And at some point, the Fed will begin to lower rates. That certainly will help the debt markets. But I think there's so much liquidity out there that you'll start to see, I think, more activity here in the second half of the year on the transaction side.

Thank you. There are no further questions at this time. I would like to turn the floor over to Tom Baltimore for closing comments.

Operator, thank you, and thank you for your help today, and look forward to seeing many of you next week and also at NAREIT and safe travels.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.