Greetings, and welcome to Park Hotels & Resorts Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, the offer is being recorded. I would now like to turn the conference over to your host, Ian Weissman, SVP, Corporate Strategy. Please go head.

Thank you, operator, and welcome, everyone, to the Park Hotels & Resorts Second 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 may discuss certain non-GAAP financial information, such as adjusted EBITDA. You can find this information together with the reconciliations to the most directly comparable GAAP financial measure in the morning's earnings release as well as in our 8-K filed with the SEC and a supplemental financial information available on our website at pkhotelsandresorts.com. This morning, Tom Baltimore, our Chairman and Chief Executive Officer, will provide an update on Park's current operations in addition to his thoughts on the industry as a whole. Sean Dell'Orto, our Chief Financial Officer, will provide a brief review of our second quarter results as well as an update on our balance sheet and liquidity. Following our prepared remarks, we will open the call for questions. With that, I would like to turn the call over to Tom.

Thank you, Ian, and welcome, everyone. I want to start by saying that I hope all you and your families remain safe, healthy and well. Without a doubt, the last 5 months have been the most challenging period the lodging industry has ever faced with travel grinding to a virtual standstill, mandated stay-at-home orders and restrictive travel policies across the world. While the U.S. gradual reopening in early June, COVID-19 cases continue to rise and with widespread uncertainty, travel demand remains largely depressed. With social distancing practice is still very much the norm, businesses have encouraged employees to remain at home and many school districts will implement virtual or remote learning for students, both of which are major impediments to business travel. We don't expect a meaningful increase in demand until medical solutions, including vaccines and therapeutics are in place. And we are encouraged by the global race underway and the pace of vaccines in development, including several that are being into Phase III trials. Despite these challenges, our team remains committed to executing our action plans to mitigate our losses and bolster our liquidity. We moved quickly in March and April, as we suspended operations at 38 of our 60 hotels, dramatically reduced our capital spend by over 75% and drew down our $1 billion from our revolver. We further solidified the balance sheet by amending our corporate credit facility to obtain covenant relief and substantially increased our liquidity with a $650 million bond issuance. With the combination of these actions, we ended the quarter with over $1.6 billion of liquidity available, a $300 million increase from the end of the first quarter and reduced our monthly cash burn rate to $65 million, assuming all hotels have suspended operations or a 23% reduction from our original estimate. This equates…

Thanks, Tom. Turning briefly to our second quarter results. We ended the quarter with a 96% RevPAR decline, with the majority of our hotels closed during the quarter. For those hotels that remained open, we witnessed slightly better results each month, with occupancy averaging 14% in April, 20% in May and increasing to 30% in June. In July, after opening additional 10 hotels, occupancy improved to 36%, further highlighting the gradual ramp-up in demand. Top performers in July include our Doubletree Durango Hotel at 87% occupancy; Hilton Seattle Airport at 62%; costa Marina in Key West averaged north of 51%; while our Hilton Santa Boba Resort also exceeded 51% occupancy. Looking out over the balance of the year, we expect operating performance to remain challenging as continued concern over COVID-19 is creating an overhang for both leisure and business travel. Group revenues are anticipated to be down 95% in the third quarter, and we are assuming a similar decline for the fourth quarter as events continue to be canceled. That said, more than 20% of this year's group cancellations have already rebooked into future years with another 30% in the pipeline. Overall, we expect performance will continue to be driven by suburban and drive-to leisure hotels, which currently account for approximately 40% of our room count. Turning to the balance sheet. As Tom noted in his comments, one of our key priorities has been to fortify our balance sheet to allow us to effectively manage through this crisis, recognizing that its ultimate duration is still unclear. Due to our actions, the balance sheet remains in excellent shape with over $1.6 billion of liquidity available as of the end of the second quarter, consisting of $1.3 billion of cash and over $300 million of availability on our $1 billion revolver. With…

[Operator Instructions] Our first question comes from Aryeh Klein with BMO Capital Markets.

Can you talk about the seasonality and how you expect that maybe intact occupancy post the summer given the heavy leisure demand you've seen so far?

Can you repeat the question, Aryeh? It's difficult to hear you, and you're breaking up a little bit.

Sorry about that. Can you just talk about seasonality and how you expect that to trend post the summer when perhaps leisure demand slows down a little bit?

Yes. I think the reality of -- if you think about our portfolio, obviously, our product type and then obviously, our distribution, clearly, the second half of the year will continue to be a challenge for Park. And the reality is, as I said in my prepared remarks, you're not going to really see, I think, a meaningful increase in demand for our portfolio candidly for the industry until we have medical solutions in place, whether that's vaccines and/or therapeutics and confidence is really restored. We're encouraged. As I said, I think there's a lot of -- with the global race underway, I think there are 5 or 6 different solutions that are in Phase III of the trials. And so as we sort of think about third quarter, to answer your question directly, we're probably looking to be down again, probably north of 80% of RevPAR and clearly picking up in the fourth quarter slightly better than that. But the second half of 2020 will certainly continue to be a challenge year for us. If anything, given what's happening, you could make a case that, that leisure demand could, in fact, get extended into the third quarter. There's about 14,000 rooms or about 47% of our portfolio, where it's a strong drive, too. So we do expect as people continue to have fever and want to get out, that will certainly benefit from that. But no doubt, the second half of the year will continue to be challenged until those medical solutions are in place and confidence is restored.

Got it. And then it sounds like you're doing more contract business here, which you've seen from others as well. How much more opportunity do you see for the remainder of the year there? And can you just talk about rates, the rates you're seeing on those?

This is Sean. I mean, we are definitely seeing more contract in the mix. I think this time last year, clearly, looking at June, the mix for revenue for contracts about 5%, and we're around 15% this June. So clearly, clearly more contract that's been a base of business that we've relied upon through for the hotel that remained open through -- since the pandemic started and certainly have great relationships with the crews -- airline crews and the like that we've maintained and managed to maintain and even picked up in certain markets. So I think that's only be a focus for us going forward. I mean we that layered in. We like it layered in even during good times for some of the sites of our hotels. So that will continue, and we'll certainly be aggressive in looking at. I think, as you look at the rate for that, it generally held up okay considering, but still down 15%, 20%, as you look kind of year-over-year for June.

Our next question comes from Dany Asad with Bank of America.

So my question was, I mean, Sean just kind of touched on it a little bit at the end there. But can you may be help walk us through kind of how rates held in across the portfolio? I'm assuming there's a dispersion between your drive to resorts and the rest of the portfolio, but any color you could provide there would be helpful?

Yes. I think obviously, looking at ADR across the portfolio is challenging because of the mix shift I think -- obviously, you have talked about contract and with that extra emphasis on contract, I mean, contract typically is anywhere from 25%, 30% below what we see in group in overall leisure's last business transient. So mix shift there contributing to it. But as you look at some of the drive-to resorts, I mean Costa Marina in Key West year-over-year for the month was up 3%. Reach was around the slightly down and Santa Barbara has held up, okay, I think, slightly down like 10% or so. So I think, generally, in those markets, we've seen certainly strong performance with rate and exceptionally better -- better-than-expected performance on the occupancy side as well. And saw that in June and into July, building well until the resurgence happen. I think we're probably looking at the QS assets being north of 70% occupied and really kind of fell down to 50%. So that's had an impact. But I think rate, again, it's more of a mix element. But as you look at certain components, even within those components, there's a mix element there, too, but you're probably seeing rate anywhere down from 20% to 30%.

Got it. And then just my follow-up. Some of your peers have given us just kind of an indication of how much of the group business on the book that's being canceled is kind of getting rebooked into future periods. Can you may be give us just some color on that? Anything that you have in terms of group business and maybe like the pipeline, kind of how that's been behaving?

Sure. I think it's actually probably consistent with others we've received about 20 -- 21% of room nights that were canceled in 2020 so far rebooked into later years. I'd say about half of that has been rebooked into '21 and '22. Thankfully, not a lot in 2020. So we don't certainly expect that to ultimately come to fruition. And pipeline, just 30% of that canceled 2020 cancellations that are sitting in the pipeline right now. Ultimately, I think taking a wait to see approach. So certainly, I think that's going to be a good, I think, tailwind for everybody when the vaccines kind of come through, I think we kind of have people kind of making decisions at that point to rebook into these kind of future years.

Next question comes from James Roth with Citi.

I wanted to ask you, Tom, you talked a little bit about in your opening remarks changing the operating model, which is something a lot of owners have been focused on in this environment. How are the brands, I guess, in terms of making meaningful changes to the way the operating model can work? And I guess, specifically, one thing that's kind of come up is eliminating housekeeping during a guest stay, even post pandemic. And I'm wondering, does that make a pretty significant difference in terms of operating margin? And are there other kind of big moves potentially on the table, that would change your ability to put up better margin even in a lower revenue environment?

It's a great question. I would tell you that this crisis, one of the benefits coming out of what's obviously a hardball situation for all of us is there's an incredibly better collaboration communication among the brands and others to really rightsize the business. And I kind of put them in really 3 sort of buckets. And you touched on one. Obviously, no housekeeping for stay overs. I'd probably modify that and say, limited or no housekeeping. The reality is that it protects the guests and employees. I think that mindset is probably going to continue post pandemic. We'll probably will end up with some sort of opt-in or opt out depending on the market and the scenario. But there's no doubt from a customer prefer standpoint, customers are speaking, and the evidence is there. So as a result of that, clearly, there are going to be savings there, and we believe pretty significant. But if you also combine that with sort of reimagining room service, going with probably a menu and probably a delivery only or pickup, sort of a drop in knock, if you will, again, when you're having little contact with certainly the guests, which is, again, the preference for many. I also think more contactless front desk and really continuing to see an expansion of Digital Key at Hilton and the equivalent, obviously, mobile check and then Marriott and Hyatt and other I think you're going to continue to see that. I think those 3 buckets, if you will, are a huge opportunity in the industry. And if you take our portfolio, and if you assume we get 100 basis points or for lucky to 300 basis points, you're looking at probably $30 million to $90 million a year in sort of operational savings when you look it at a pre-COVID environment. So I think there's a huge opportunity there. I also think there's the opportunity for complex we are in discussions with our operators and where there are common managers across ownership groups in certain markets. Can we combine -- whether it's a manager or other management staff, there are other operating costs that we can combine to really take cost out of it. I know Marriott and both Hilton are passionate, committed to this. And I know that they're also working to take costs out above the property as well. So we are all in on this concept. We think it makes sense. It's going to benefit the industry. There will be complexities to every one of these initiatives. But really, the passion and motivation is there. So we are encouraged as we move forward.

Okay. And then in your opening remarks, too, you said a less hotel supply going forward. Were you talking about the potential for new development? Or is there your view that a significant piece of the existing in-place inventory won't reopen?

I think that it's a fair statement just given the dire circumstances that we all find ourselves in that there will be owners who are either expanded, obviously, on the debt front, unable to meet debt service. I think delinquencies are already up at 21% in our -- in the industry. So as you look across markets, you have to believe in New York as an example, some are talking about perhaps 10% or 20% of the supply for a market that already has 135,000 rooms, plus or minus, that's significant. As you think about Chicago, perhaps even in San Francisco, depending on how long, obviously, the pandemic last, you have to believe that there will be certainly a reduction in supply. There will be owners that I think probably not only throw back the keys, but others have looked to convert to other uses. So we think that will be a tailwind when we get through this. We also think, as you think about that providing somewhat of an opportunity for more pricing power, which really the industry is, as we all know, is really lacked that certainly the latter part of this last cycle. So we think that's going to be a net post coming out of it. Again, every market will be a little different, but I think there certainly are a number of markets that are fair to say that we'll see a reduction in supply. And we're talking about the U.S. We're not talking about outside of the U.S.

Next question comes from Anthony Powell with Barclays.

A question on the regulatory environment in some of the largest markets. Just that do you think some of the local governments are looking to try to get things open, maybe in the fall or winter, do you think there's a risk that some of these markets stay closed for much longer even into the first half of next year as some of them have been very conservative in terms of opening?

Yes, it's a great question. I would say the most challenge is probably going to be Hawaii. If you think about Hawaii, they've -- the administration there, I think, in fairness, has done an excellent job. I think there are only about 2,600 cases, and they've only had 27 deaths. Unfortunately, they have seen a slight uptick this week, I think 200 cases on Monday, Tuesday and 140 cases plus or minus on Wednesday. So I know the Governor continues to manage stay carefully. That, as you know, that opening there, has been pushed back a few times. Currently, we're planning on September 1. And we haven't heard anything to the contrary. It would not surprise us if that one were to get pushed back. I think as it relates to San Francisco, the Mayor stated kind of phase 3, I think, begins on August 13. So we would expect to sort of begin that. We're not planning. We've got 6 hotels there. We've opened 2. There's 1 that we will open this month. The others will wait for really more growth and more acceleration in demand before we would hope it. We would certainly expect perhaps that to be in the September, October time frame. But again, as I said in my prepared remarks, we are carefully managing one, our desire to open hotels and make sure that we can do it safely and profitably or at least lose less money than we currently are as we manage our cash burn rate. The team has done a great job, as you know, bringing that cash burn rate down from what we thought $85 million down to $65 million. And as Sean said in his remarks, it really -- the actual cash burn rate is really in the $50 million to $55 million, giving us really another 5 to 8 months of runway. So Park's got well north of 2.5 years of runway here, we think, under the most extreme scenario.

Got it. And maybe switching gears to just to asset sale transactions. What are you seeing in the market right now? And would you consider bringing some access to market in the back half of this year or early next?

We are really focused on finance. As Sean pointed out, there are really 4 priorities for the Park team: clearly reopening hotels, as I just mentioned, in a thoughtful, profitable way. We're obviously minimizing our cash burn rate; secondly, continuing to reduce that cash burn rate; third, addressing our near-term maturities, given the great success we have with our covenant relief. And then again, our bond offer, Park has a lot of optionality given our scale; we continue -- the fourth would be continuing to evaluate noncore asset sales. I'll remind listeners that we sold 24 assets for $1.2 billion, obviously, over the last few years, including 14 assets internationally. We've never stopped in discussions with prospective buyers for our noncore asset sales. We would -- you'll see us continuing to have those discussions. And when we can get the COVID discount narrowed some, you'll see us contract and with an objective, obviously using those proceeds to reduce leverage. It is not -- it is our preference as we've done to continue. And even post Chesapeake, we had sold about $470 million in assets pre-COVID. So we were really well on our way of continuing to sell noncore assets.

Is the COVID discount still about 20%? Or is that a closed recently?

Yes. I think it's closed. I think probably 20 to 30 depending on the market and the asset, Anthony, but I think down from probably 30 to 40, but it continues to narrow. As we get closer and there's more evidence that there will be therapies and vaccines, and we believe that and we certainly believe that the global rates underway is going to yield that, that will provide the confidence of people know we're going to get to the other side of this pandemic.

Next question comes from Bill Crow with Raymond James.

Tom, how are the guests reacting to the changes operationally and from a labor perspective as they go -- especially some of your high-end hotels?

Yes, it's a great question, Bill. I think -- and I chose my words carefully when I said earlier that I think you'll see sort of limited to no kind of housekeeping for Clearly, as you think about luxury, I think that limited will be limited, and it will be really on a case by case. It would not surprise me that we largely continued housekeeping. I think the guest is going to demand for and candidly prepared to pay for that incremental service, whether that's embedded in the rate or whether there's a supplemental charge. But I think these preferences that we're talking about, many of them will, certainly in the near term, I think, be permanent, if not longer. As we think about, obviously, advances in technology, which already exists here and contactless front desk and using digital key, clearly on housekeeping, people are not going to want people in the room. We're seeing that. And then room service. Room service, again, as you get to a luxury product, you'll have to find what is the right model for that particular asset. But I think generally speaking, this sort of delivery only and kind of a drop in knock is really going to continue to take showing gain momentum, and we're not seeing any resistance at all

All right. Perfect. Quickly, could you just talk about the economics of using a hotel for student housing?

Well, if you think about New Orleans, as an example, where a hotel that runs 65% to 70% group, and clearly, where there's not a lot of demand, and I credit our operating partners at Hilton for and our asset management team for being so proactive and reaching out. And in this case, operating model is there will not be room service, there will not be housekeeping, there will not be a food and beverage component. It really is providing them with that one product, which is what the University of which is what the students want. So we found that balance. I don't recall the actual rate for that business. Sean may provide that in a second. But I think it really made sense. And the incremental benefit to us is about $7 million in incremental revenue, really not a big cost component. So the flow-through here is going to be really good for us. And we are looking for similar opportunities in many other markets as we move forward.

If I could add to that, Tom is right. I mean, the flow-through maybe kind of add-back to the fact that you're not paying -- you're doing housekeeping like and you're not paying the acquisition costs of that customer is direct. And you kind of add to -- you kind of gross that rate back up, I think you kind of get to where you kind of see a contract again. If you think about this asset in New Orleans as an environment over the next 9 months take out 40% of your rooms for this on a hotel that relies on 70% as a group, I think it's certainly the right trade to make in the near term.

Our next question comes from Neil Malkin with Capital One Securities.

Just maybe a higher-level question or a way to think about it. You talked about the vaccine or other therapy, something like that, being in pretty late stage trials, which we can all agree is fantastic. However, that there's still going to be time it takes to get commercialized, distributed, get public buy in or inoculation. And then it's also about corporate and individual comfort. So maybe if you could just talk about or share some initial thoughts on your view for what largest corporate accounts you have what their stance is or how you think that will actually play out in terms of seeing demand come back when we do have a vaccine? Because it's, obviously, going to be more of a going to take longer than, oh, we have a vaccine, and then tomorrow, all the groups come back, right? It's a process mentally as well as objectively. So any thoughts would be great?

Yes. Look, it's a great question. And I think I'd make a couple of comments here. I think the first is that, like you, and I think all the listeners, I believe passionately in the American spirit, the American will. But I also believe here in this particular manner, where we've got a global pandemic and you've got this global race underway. And you've also got the federal government investing billions of dollars. And as you know, they're already manufacturing with many of these prospective vaccines with the hope that that some are all will hit and that they'll have capacity there. What none of us can predict, and you hit the nail on the head is really going to be the adoption rate. But if the medical professionals are coming out and they are communicating that these therapies and vaccines are safe and they're advising that we're going to take it, you have to believe that the vast majority of Americans will get to the other side of this, so that we can resume our normal lives of going to work, going to restaurants, going to movies, traveling, that human interaction that we're for that is really not being replaced by Zoom and Webex and some of the other devices. So I -- my personal belief is that the adoption rate will be high. And you're right, they'll take some time. I think as Congress addresses the liability issue, as you think about companies and schools and governments, they're really afraid and part of that limiting the liability once we get to the other side of that, people are anxious to resume their lives. So is that first quarter, is it -- if we have them approved by November, I certainly don't think it's December and everybody's back to the old normal, but I certainly can believe that by first quarter, assuming the adoption rate is going as planned and has recommended, you would start to see the beginning of companies bringing people back, travel resuming. I still believe that leisure will be ahead. And that followed obviously by business transient group. I think the long will be group until people really, again, feel safe and confident. Companies are probably going to continue to be careful and cautious with that, and we'll have to continue to rightsize and been creatively about our business as we're doing. As we're doing in New Orleans, obviously, taking 40% of the business and essentially using it as for university. We'll do what's necessary in the interim to continue to gain revenue and certainly reduce our cash burn rate.

Yes. I appreciate that. I understand it's a tough question, but I just like to hear your thoughts. Sean...

Good.

Why?

To share them.

Yes. So Sean, it seems like the covenants you have from the waivers -- or the -- I'm sorry, the restriction for the waivers are pretty strict, but you also talked -- when you talked about selling noncore assets, I'm just wondering, maybe can you just walk us through like what are you not allowed to do? What can you do? Like maybe the salient points that are -- that you have to adhere to during your waiver period?

Sure. Ultimately, we do have -- I think the typical restrictions you're going to -- you expect to see no buybacks, no dividends and the like there. Certainly able to kind of manage our operations, refinance current we can internally do that for refinancing purposes. But for the kind of additional debt outside of that or to sell assets, there is a repayment waterfall. And that kind of drives it and ultimately looks to pay down credit facility debt. There's a mix between revolver and term loans, so the mix between -- still liquidity on the revolver side with some permanent capital reduction from a debt reduction as well. So there are restrictions in terms of while they've given grants us relief, the quick is to kind of behave in a way to kind of keep the cash in the system in a way. And so that's kind of what we ultimately adhere to. I mean, part of it, too, for us was extending our credit facility out a year and getting 100% approval on that as well as getting liquidity. And we were able to accomplish all that, too. So -- and I think we have plenty of room to operate. We have a $200 million investment bucket. We can utilize. We can do asset sales in 10 31 without any restriction there. And we can -- we ultimately can -- if we were to raise equity, we have $500 million to use for other purposes besides paying down debt at this point. So I think we certainly feel like we had enough optionality and flexibility given the circumstances.

Yes. No, I appreciate that. And then one quick housekeeping, I guess along the same lines. The -- you said you guys deferred principal and interest on some of your mortgages. A, how much is that saving every month? And then B, is that in your new cash burn rate?

That is not. What we ultimately do with our cash burn rate. You most as we assume are closed and kind of what we're seeing currently with the majority of the assets open, which more kind of an accrual base. We're not -- we don't want to get into the mode of that working capital. So we're still counting those kind -- that kind of interest carry in our cash burn. But ultimately, it's -- the things we've done concessions on thus far, kind of a lot in the Chesapeake portfolio and so it doesn't amount to a lot, but it's about $4 million to $5 million of deferral across a kind of a 3- to 6-month period.

Next question comes from Gregory Miller with Securities.

My first question, to my understanding, there is pending U.S. legislation that may shield businesses from liability if people get sick for COVID-19. I believe this letter was signed or supported by amongst other groups. I'm curious, how do you see corporate travel demand progressing if this bill is passed?

Well, the majority leader, Greg, was on this morning part I think made it abundantly clear that the pending legislation, this next phase was not without having some sort of liability limitation across businesses, schools, governments, etcetera. So I think it's an important cornerstone. I think what's more important is to get this overall Bill passed, get the additional support that's needed for small business, the unemployment insurance and then again continue to support all of the positive work that's happening on the medical front. I think all of that combined will, I think, provide the confidence to really accelerate the pace. There's no doubt that companies at this point are being careful and cautious, no different than what we're all doing. We have a skeleton crew here at our office. And essentially, everybody is working remotely. People are making it work. I think we're all anxious to get to the other side as quickly as we can. But I think it takes all of those components, where I think will really accelerate. With clearly the vaccine and/or therapies being a paramount, that's going to provide really the confidence that's going to give all of us the ability to come out of the bunker and begin to resume our lives again.

Great. One other question that I have. I appreciate all the great disclosure and the supplemental deck with the reopening dates that you provided. Given the labor cost and operational challenges with the cleaning ordnance that was passed in San Francisco, and I read your editorial in the San Francisco Examiner. I'm curious how the cleaning cross ordinance, combined with operational costs and your modeling today, how that factors into your plan to reopen dates within the market?

Yes. It's a great question. We at Park, we're actively involved. And I think pointing out to the city of San Francisco, along with American Association and other owners and other peers that this was really bad legislation. We've got a safe stay by the Association. We obviously have clean stay by Hilton, committed to clean by Marriott and the equivalent across all the brands, the great men and women on the operating side know how to clean a hotel and secured safety. So we really thought candidly that this Bill was -- it's nothing more than a Jobs Bill. It's not a Safety Bill. I'm confident, Greg, at the end of the day, when we get the vaccine, when we get the protocols in place where people feel safer, the reality is that we're in a global pandemic. These local officials, including the unions are desperate. They're panicked, they're trying to just protect jobs. I don't like the tactics, but we understand the issue. And I think what's most important is that we prepared to reopen. We have the appropriate protocols in place to keep our employees and our guests safe. But that at the end of the day, we don't have mutually assured destruction. And that we're thinking positively about the interim and long-term about our great business. I'm confident that a clear hedge will prevail, and we'll get to a balance that, that really matters and that continues to uplift this business and at the same time, taking cost out of it. Guests are speaking and guests are clear about what they want. They want more flexibility on the housekeeping, whether it's opt-in or opt-out. There's no doubt that they want to bypass the front desk. You're not going to be able to stop these advances in technology. I think the industry has got to work together with labor in certain markets and across the industry to find the right balance. And we don't take these things personally. We are confident that we'll find the right balance and we will reopen our hotels in San Francisco, among other cities and these are the great cities of the world and people want to visit and travel to, and our employees continue to provide the great service that they've always provided.

Next question comes from Stephen Grambling with Goldman Sachs.

So on -- and as we think about financial leverage longer-term and also just hearing a number of your peers have been reprioritizing reinvestment into the base business with base hotels, how are you thinking about a re-ramp in CapEx as things normalize within that capital allocation priority? And is there any kind of catch-up that may need to happen as properties reopen?

Yes. We've always taken a position on CapEx of about 6%, certainly given our portfolio and the size and scale. So we -- as you can expect, given where we are in the pandemic, we made the appropriate decision to really reduce CapEx by 75%. As we begin to ramp up, we clearly will be a little bit of catch-up. We'll assume that will probably ramp up, whether that's an incremental 100 or 200 basis points so that we at 7% or 8% temporarily. We'll do what's necessary, but we continue to highlife safety, emergency capital. We continue to monitor and carefully. We've got a very capable design and construction team we continue to monitor our assets and to make sure that things are in good order. Over the intermediate and long term, we believe there are a number of embedded ROI opportunities within our portfolio. Obviously, Bonnet Creek, as you know, we've started the expansion there of the meeting space. We've obviously deferred that for now and the rebranding of that asset. Clearly, we'll continue to look at our asset in San Jose and converting that from a Doubletree to Hilton. We obviously have the Doubletree in Crystal City, was at the front door, the Amazon facility there at the second quarters. So we've got a lot of optionality and a lot of great upside in this portfolio that we look forward to really getting at as we move forward in the future.

As a follow-up to some of your comments earlier. I guess, given the structural changes that you do anticipate in the business model, in some cases, how might these changes influence what might be deemed core versus noncore assets?

Yes. That's a great question. I would say one of the things that I think is important is to not overreact. I think, first and foremost, on the Park side, we are confident in our strategy. Again, our upscale and luxury hotels in top 25 markets and premium resort destinations, we have conviction over that. You think about our assets in Hawaii, the Hilton Village, 22 acres, 2,900 rooms, world-class fortress, 5 towers, you could never replicate that in today's world. If you think about the assets that we have in the CBD in San Francisco and New York Hilton or the Chicago Hilton, these are well located, bull's eye real estate. Having said that, we also believe that you want to follow the demand and that those markets having huge barriers to entry, demand will come back. Clearly, there will be other markets that as we think about the shift in growth. You have to believe that Austin, Nashville, other markets like that, will continue to grow and expand. And clearly, we'll look at expanding our footprint into those. We probably don't want any one market to be more than 10% to 12% in a perfect world. Clearly Hawaii accounts for more of that today. But part of the benefit of the Chesapeake is that we were able to bolt-on 16 assets that really give us brand operator and geographic diversification as well. So you'll clearly look for us to do more of that in the future as we get to the other side of this pandemic. But there's no abandonment. We're not retreating now and looking to go purely off suburban because the suburban seems to make the most sense today. The analogy that I would use is think about several years ago when everybody thought independent hotels in New York with the right thing to do. And everybody rush to buy independent hotels. I don't think that strategy worked out so well for many people. You won't see a panic out of the Park team here. we Believe in our -- with conviction in our current strategy, we'll pivot, we'll adjust, we'll recycle noncore assets and then we'll continue to look at those other pockets and areas where there are growth opportunities.

Next question comes from Brandt Montour with JPMorgan.

Just curious if you mind sharing July, sort of RevPAR metrics, just given all the moving pieces you want to bridge the 2Q with the sort of 3Q guidance you gave?

For July, the high REVPAR, what's been down -- July RevPAR is from a flash standpoint here at 88%.

Yes. It's down 88%. But if you look sequentially, June occupancy was up about 9.4%. We grew July occupancy to 14.7%, but July was down 88%.

Great. Okay. And then just looking out to the second half, and I don't want to split here, but I'm just curious what is driving the confidence that 4Q would be better than the Q in terms of RevPAR?

Well, one, we would think, obviously, by the end of September, we said we expect to have 80% of our hotels open. So clearly having -- getting closer to north of 80%, whether that's 90% or 100% by fourth quarter. Having more hotels open certainly gives us the opportunity, whether it's through contract business, whether it's through ancillary revenue, whether again, we're beginning to see a slight, more confidence and again, on the medical side, where we will begin to pick up. No doubt, second half is going to be challenged. I don't want to imply. I think, as you know, we're down 96% here in the second quarter. We would probably expect to be down north of 80% in RevPAR in the third quarter. And then clearly, in the fourth quarter, that should certainly moderate, whether that's down 60% to 70%, somewhere in that range, but again, that would only be a really hard guess at this point.

Okay. Great. And then -- but aside from that, in the fourth quarter versus the third quarter, there's no seasonal difference. I mean, medical solutions aside, if that doesn't happen for us, seasonality wouldn't dictate necessarily any lift fourth quarter over third quarter?

No. No, there's no -- look, you could make the case that perhaps leisure gets extended a little bit, but it's a difficult environment. People -- you see more and more evidence of people resisting the cap and fever and beginning to get out, whether they drive to or the spending time, even those sales meetings consultant, so you are seeing some evidence. It's on the margin. People are beginning to begin to travel, certainly a little more. But at the end of the day, as I said in our prepared remarks, I think it really comes down to the medical solutions will be the game changer.

Next question comes from Chris Woronka with Deutsche Bank.

Question for you, Tom. How much -- I mean do you worry all about rate integrity? Or how do you look at rate integrity going forward with -- the industry looks a lot different than it did 11, 12 years ago. We've had M&A. We've had a lot more pushed towards direct bookings. But if there is some piece of group or corporate that's missing for a couple of years, how do you look at things like rate negotiations? Also understanding that there could be positive offsets on the supply side, right? How do you see the rate situation shaking out for the next couple of years? I know that's a crystal ball type question.

Yes, it's a great question, Chris. One that if you think about the last cycle, I think the frustration that all of us would have, right, we never really saw the pricing power for all the points that you made, and I think supply contributed to it. I think, clearly, the OTAs clearly played a part of that and the other part is that the business is so fragmented. I think the opportunity here as we think about rightsizing. I think there's the opportunity, again, that supply. You have to believe there's going to be a contraction. We can argue how much, but clearly, this distress is going to create a distraction for a reduction in supply for some period of time. I also think when we come out of it, if we're able to rightsize the operating model, that gives us the opportunity as well to think about customer acquisition cost. And can we continue to think about ways to provide a different level of value and service and can we go to like the airlines some items. The airlines retrained us in their process on the hotels can also do the same. These are the types of things that I know we're talking to the brands about and our operating partners. And I know that other owners are doing it as well. We should use this crisis. It is painful as it is to hit on the other side with a much better product, a much leaner operating model and hopefully, a more viable business for all of us as we move forward. There's better communication collaboration today in these topics that I've seen in my north 30 years in this industry.

Great. Very helpful, Tom. And then just a follow-up on the capital allocation decisions. Is there -- is a key indicator you look for -- if equity is going to be a part of the equation, is it you can't get asset sales done, which I think would be unlikely, but -- or is it more opportunistic? Is there a certain number? Just trying to get a sense as to we remember that there was a ton of equity issued coming out of that last downturn to shore up balanced balance sheet. So that ended up being a very good liquidity event for the industry.

Yes. It's a fair question, Chris. I would say the reality is, and if you think back in a period of time, which I remember, I also happened to be on a few other public company boards, and I think a number of companies that made that capitulation trade did so because they had to, whether we're showing up their balance sheet or alternatively, they perhaps setting use of proceeds. I think as it relates to Park and where we are, we will be laser-focused on continuing to manage our liquidity. Based on the great moves that the team has made, a lot of credit to Sean into the team, being our very successful bond offer we have obviously enough liquidity for the next 2, 2.5 years. There's no need for us to do any kind of equity offering at this point. As we get beyond, hopefully, we get the vaccine, we get more clarity, we see acceleration in demand, we would think about equity offerings at a much later date as a potential growth vehicle, not because of we think there's a need for any kind of equity offering in the near term. Equity would be the last thing that we want to do at this point, given where we are. And candidly, where we trade. We trade a significant discount to NAV, a significant discount to replacement cost. It makes no sense at all for us to do any kind of equity offering and certainly something that would be so dilutive to our current shareholders. So we would be adamantly opposed to that.

Next question comes from Robin Farley with UBS.

My question -- I've actually had since this my question since the start of the call, but it's going to sound like a follow-up to one of the previous questions because you touched on it a little bit, but I wonder if you could give just a little more color on what your usual mix of business and leisure transient is in Q4 versus Q3, just how that transitions bidding quarters in a typical year?

Look, the contract was always -- has always been kind of about 5% or so on a revenue mix basis. As we've kind of looked at Q3 versus Q4, it -- I apologies, just kind of give me 1 second here. But if you look, Q3, Q4, I think it's generally been -- it's generally held about the same. I'm looking at it right now. It's pretty much from a revenue standpoint last year. Pretty much spot on the same from a revenue standpoint. So from a group, it was kind of high. It was almost 28.5% or so, transient about 64%, contract about 5%.

But I meant the -- sorry, the split between leisure transient and business transient as you go from Q3 into Q4?

I don't have that in front of me.

Just thinking about, obviously, that, as leisure, it seems where that's where the demand is focused in Q3 and just kind of how that would typically look going into Q4. The degree to it should become maybe more dependent on the business transient side of things?

Yes. I think historically, Robin, it's probably on the margin a few percentage points. But Sean and team will look at it. We'll get back to you to make sure that we have answered your question. I don't think it's going to be that significant.

Next question comes from Lukas Hartwich with Green Street.

I'm curious, do you think this experience permanently increases the risk premium for

No, look, it's probably easy to make that statement today given what we've all been through. I mean, I would say, if you think about generations, the real benefit, I think, of having, obviously, these big group hotels, anchored, the way you do is the multiple sources of demand, right? You've got leisure, business transient, you've got embedded group, in-house group. They have the ability to really take advantage of citywides. And you have all of those wonderful events that occur, certainly religious family, et cetera. Wedding. So I would say the diversity of sources of revenue. I would also say the fact that they're the huge barriers to entry to being able to replicate, think of how few big box hotels are getting constructed. It'd be near impossible to really replicate the portfolio that we have across many of the major cities in the U.S. So clearly, we take it on the chin right now, given , one, our product type and given our distribution. But I would also say that when we get to the other side of this, whether that's 3 months, 6 months or 9 months, Park is going to be incredibly well positioned with it improves this operating model, I think, tremendous pent-up demand. And I think the opportunity for us to have outsized years of growth. It's not happening right now, given the reality of what we're faced with. But we are encouraged and confident that we will get to the other side.

That's really helpful color. And then my other question is for Sean. I'm just curious about the prospects for extending the revolver and the term loan that are due late next year?

Yes. I'm very confident. We do kind of coming off of the bond amendment that we did in May. We look to reengage and work through that with our banks, already having conversations with them with our leads. And again, Tom mentioned the optionality we have, and we're looking certainly to kind of utilize that as we explore our options with that and certainly expect to have further reports on that through the -- after the third quarter.

I would like to turn the floor over to Tom Baltimore for closing comments.

I appreciate all of you taking time today. We look forward to having our third quarter call in late October. Stay safe, be well, and look forward to talking with you all soon. And can wait until the days that we could be together in-person meeting.

This concludes today's conference. Thank you for your participation.