Prepared remarks
Greetings, and welcome to the Park Hotels & Resorts Second Quarter 2026 Conference Call. Please note this conference is being recorded. I will now turn the conference over to your host, Ian Weissman. Please go ahead.
Thank you, operator, and welcome, everyone, to the Park Hotels & Resorts Second Quarter 2026 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 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 Forms 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 adjusted 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 an update on our strategic initiatives and review Park's second quarter performance and outlook for the year, while Sean Dell'Orto, our Chief Financial Officer and Chief Operating Officer, will provide updates on our capital investments and additional color on guidance. 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 am pleased to report that Park delivered another outstanding quarter with results meaningfully exceeding our expectations and demonstrating the continued strength and resilience of our portfolio. RevPAR increased nearly 7% year-over-year, excluding Royal Palm South Beach, with growth accelerating from approximately 4% in April to 5% in May and over 11% in June. Performance was driven by strong group demand and higher-rated leisure travel across the portfolio, highlighted by the exceptional strength in Hawaii. As a result, resort RevPAR increased more than 9%, excluding Royal Palm, while our urban portfolio delivered nearly 4% RevPAR growth. These results reflect both the pace of demand across our markets and the benefits of our disciplined capital investment strategy. Notably, our strongest performance continues to come from assets where we have invested significant capital in recent years, including Orlando, Key West and Hawaii, underscoring the value creation and outsized returns generated by our targeted reinvestment initiatives. Hawaii was among the top performers with RevPAR increasing approximately 9% year-over-year and accelerating meaningfully from the first quarter. Performance improved sequentially each month, driven by a significant increase in leisure demand and strong in-house group activity which more than offset the loss of citywide business resulting from the partial closure of the Honolulu Convention Center, which is expected to remain closed through 2027. Hilton Hawaiian Village was the clear standout with RevPAR increasing nearly 12% and EBITDA growing more than 13%. The property continued to gain market share throughout the quarter, ending June with a RevPAR index of 117, representing a 4-point improvement compared to June 2024 or prior to the commencement of the Rainbow Tower renovation. The hotel's momentum continued into July with occupancy of 98% or a nearly 700 basis point improvement year-over-year and preliminary RevPAR growth of over 6%. Both Hilton Hawaiian Village and Hilton Waikoloa Village are benefiting from our recent capital investments as the renovated Rainbow and Palace Towers are generating strong guest demand and meaningful rate premiums. Hawaii is demonstrating why it remains one of the most attractive resort markets in the country. Demand trends are healthy, with the Hawaii Tourism Board recently raising its 2026 visitor arrivals forecast by a full percentage point to nearly 2%, supported by growth from East Coast markets and improving international trends. Several major airlines, including Alaska, Delta and Southwest, have also announced increased airlift to Hawaii for the remainder of the year. We remain confident that both hotels still have significant runway for future growth as they recover back to their 2023 peak earnings levels. With the Rainbow Tower and Palace Tower renovations now complete and the Ali’i Tower renovation at Hilton Hawaiian Village about to commence, we believe the setup for 2027 and beyond is exceptionally strong. Turning to Florida. Our Bonnet Creek complex and Key West properties once again delivered outstanding results with RevPAR growth of 13% and 10%, respectively, underscoring the strength of our capital investments and the sustained demand for Florida's premier resort destinations. At Bonnet Creek, the complex achieved record second quarter rooms and food and beverage revenue for the third consecutive year, further validating the significant investments we have made in the assets. Both the Waldorf Astoria Orlando and the Signia by Hilton Orlando Bonnet Creek contributed exceptional performance with RevPAR increasing nearly 15% and 12%, respectively. Remarkably, Waldorf Astoria's food and beverage revenue surpassed last year's record by 24%, driven by strong outlet performance and meaningful group contributions. We were also pleased to see the Waldorf Astoria Orlando recognized on Travel + Leisure's 2026 World's Best list. In Key West, second quarter rooms and food and beverage revenue also reached new record levels, supported by strong leisure demand and continued growth in group business. Casa Marina led performance with RevPAR increasing more than 14% year-over-year as the properties' repositioning continue to drive gains in market share, which was up over 8 points in the quarter to a RevPAR index of over 120. The resort also delivered record food and beverage results with a 36% year-over-year increase, benefiting from enhanced restaurant offerings and the continued success of Dorado, highlighting the strong returns generated by our recent investments. Our urban portfolio was another source of strength during the quarter. Washington, D.C., led the way with nearly 17% RevPAR growth as government-related demand increased. Chicago delivered nearly 12% RevPAR growth, supported by strong group and transient demand and exceptionally strong banquet and catering results, which drove meaningful profit growth, while Hyatt Regency Boston benefited from continued strength in group and citywide business along with demand associated with the Boston Marathon and World Cup matches, resulting in nearly 9% RevPAR growth. Turning to group demand, which was a major contributor to our second quarter outperformance. Group rooms revenue increased 9.5% year-over-year, led by strength in Washington, D.C., Orlando and Chicago while June group revenue increased nearly 23%. Full year 2026 group revenue pace is now up nearly 6% compared with the same time last year, representing a meaningful improvement from last month. Our third quarter group pace is up over 15%. We remain encouraged by overall group booking trends for the balance of the year, supported by continued strength in corporate groups, in-house events and citywide activity across several of our core markets. Looking ahead to 2027, group revenue pace for our core portfolio is up over 6%, with double-digit increases in Hawaii, New York, Key West and San Francisco, providing us with further confidence in the continued strength of group demand. On the capital allocation front, we continue to execute our strategy of recycling capital out of underperforming non-core assets while enhancing the quality and long-term growth profile of our portfolio. Since our May earnings call, we have completed three additional dispositions. In May, we sold our ownership interest in an unconsolidated joint venture that owns and operates the 288-room Embassy Suites Old Town Alexandria for gross proceeds of $29 million. In June, we exited the 262-room Embassy Suites Austin through the termination of the short-term ground lease and sale of the hotel's operating assets, generating approximately $6 million of proceeds. Most recently in July, we completed the sale of the 314-room Hilton Short Hills for $12 million. These transactions represent another step forward towards simplifying the company, lowering future capital needs and concentrating our portfolio on higher-quality assets with stronger growth prospects and more durable earnings. Since announcing our plan in early 2025 to exit our remaining non-core assets, we have sold or disposed of 10 of the 19 identified hotels generating nearly $200 million of proceeds at an average multiple of approximately 12.5x EBITDA. And since the spin, we have now sold or disposed of 55 assets for more than $3 billion. We continue to make solid progress with the remaining non-core hotels, which today account for less than 5% of the portfolio's value and remain firmly committed to materially reducing our exposure by year-end with active marketing efforts underway for several assets. As always, we remain disciplined and laser-focused on executing transactions that strengthen our earnings, improve the long-term growth profile of the portfolio and maximize shareholder value. Turning to capital investments. We are thrilled to have officially reopened the Royal Palm South Beach on July 22, following the successful completion of its transformative redevelopment, which was completed in just 15 months as planned. The more than $100 million project included the comprehensive renovation of all 393 existing guestrooms, the addition of 11 new keys, a complete re-imagination of the lobby and public spaces, four new food and beverage concepts and significant enhancements to the hotel's meeting and event facilities. We believe Royal Palm is now exceptionally well positioned to capitalize on the ongoing strength of the South Florida market and compete more effectively within the upper upscale and luxury segments. Upon stabilization, which we expect could occur over the next two years, we believe this investment has the potential to double the hotel's EBITDA. More importantly, it serves as another compelling example of our unique ability to create substantial shareholder value through targeted capital investments that enhance asset quality, strengthen competitive positioning and unlock meaningful earnings growth. I'd also like to recognize our design and construction team for their exceptional execution of this complex project. Their efforts further demonstrate Park's core competency to diligently evaluate and timely execute complex capital projects that will unlock embedded value across our portfolio. As we look at the balance of the year, I remain encouraged by the continued strength across our portfolio. Despite some geopolitical and macroeconomic headwinds, the U.S. economy continues to show strength, benefiting from a resilient consumer, a stable labor market and ongoing business investment supporting demand across both leisure and group travel. Combined with the reopening of the Royal Palm South Beach and strong group booking momentum, we believe Park is well positioned to deliver solid results through the remainder of 2026 and beyond. I'm also incredibly proud of the progress our team has made, strengthening the portfolio through disciplined capital allocation, active capital recycling and proactive balance sheet management, which has strengthened Park's earnings power and long-term growth profile while enhancing our financial flexibility. Beyond this year, I am equally optimistic. Following the planned completion of the Ali’i Tower renovation at Hilton Hawaiian Village expected in early 2027, we will have completed nearly $350 million of transformative capital investments across our Hawaii portfolio. As a result, our Hawaiian resorts will be exceptionally well positioned to capitalize on the continued recovery in the market and further narrow the approximately $60 million EBITDA gap relative to our 2023 peak earnings level. At the same time, as operations at Royal Palm South Beach ramp, we expect the property upon stabilization to contribute approximately $28 million of EBITDA over the next few years. Together with the continued benefits of our capital recycling program and core portfolio focus, these catalysts reinforce our confidence in Park's ability to drive meaningful earnings growth and create substantial long-term value for shareholders. With that, I will turn the call over to Sean.
Thanks, Tom. We are very pleased with our second quarter results, which came in well ahead of expectations. Total portfolio RevPAR increased nearly 6% to $217. And as Tom noted earlier, increased nearly 7% year-over-year, excluding Royal Palm South Beach. Total hotel revenue increased 6% during the quarter, while hotel adjusted EBITDA increased nearly 9% to $204 million, resulting in a hotel adjusted EBITDA margin of nearly 32%, up 80 basis points year-over-year. Adjusted EBITDA totaled $198 million and adjusted FFO per share was $0.70. The quarter's outperformance was driven by a balance of increasing group and leisure demand. As Tom noted earlier, group was up 9.5%, exceeding expectations by 700 basis points, with strong in-quarter pickup in the in-house corporate and SMERF segments while the leisure transient segment grew by over 13% and exceeded expectations by nearly 500 basis points. This pickup translated to stronger-than-expected operating results at the Hilton Hawaiian Village, our Bonnet Creek complex and Casa Marina as well as at our hotels in Chicago, Santa Barbara and Washington, D.C., each of which generated double-digit year-over-year RevPAR growth during the quarter. We also realized a modest benefit from the FIFA World Cup across our host city markets of New York, Boston and San Francisco, consistent with the lower end of our expectations, contributing roughly 30 basis points towards full year portfolio RevPAR growth, essentially offsetting the 30 basis point drag expected from Royal Palm this year. Turning to capital investments. During the second quarter, we invested a total of $64 million in capital improvements with full year CapEx expected to range between $230 million and $260 million. In Hawaii, we are set to commence the comprehensive renovation of the 348-room Ali'i Tower at Hilton Hawaiian Village this month. This investment of approximately $100 million will include a complete renovation of all guestrooms and the addition of three more keys within the premium Oceanfront Tower, along with enhancements to food and beverage outlets, including the Tropics bar and grill and the poolside outlet mix bar, all of which are expected to be completed early next year. Upon completion, nearly 80% of the guest rooms across the nearly 3,000-room Hilton Hawaiian Village complex will have been fully renovated. And finally, in New Orleans, we commenced the third and final phase of the main tower guest room renovation in May, encompassing the remaining 489 guest rooms and expected to be completed by mid-October. Upon completion, all 1,600-plus guest rooms will have been fully renovated, significantly enhancing the quality and competitiveness of one of our most important convention-oriented assets. Turning to the balance sheet. We ended the second quarter with net debt of approximately $3.7 billion, translating to a net debt-to-EBITDA ratio of 6.1x, roughly 0.2 of a turn lower than last quarter. Liquidity was $2.6 billion, including $260 million in cash, $1 billion of available capacity under our revolver and our delayed draw term loan and the $700 million Bonnet Creek delayed draw financing. During the quarter, we drew $200 million under the delayed draw term loan and used a portion of the proceeds to repay the $120 million Hyatt Regency Boston mortgage ahead of its July maturity. Looking ahead, we intend to use the remaining delayed draw term loan capacity together with the Bonnet Creek proceeds to fully repay the $1.27 billion Hilton Hawaiian Village mortgage in September and also plan to refinance the Hilton Santa Barbara mortgage later this year. These transactions are expected to meaningfully extend our debt maturities and further enhance our financial flexibility. With respect to our dividend, on July 15, we paid our second quarter cash dividend of $0.25 per share. And on July 31, the Board approved a third quarter cash dividend of $0.25 per share to be paid on October 15 to stockholders of record as of September 30. The dividend currently translates to an annualized yield of approximately 6.5% based on recent trading levels. Turning to guidance. We are increasing both our RevPAR and earnings guidance ranges to reflect our second quarter outperformance and strong start to the third quarter as demand trends continue to exceed expectations across our portfolio. Accordingly, we are raising our full year RevPAR outlook by approximately 225 basis points at the midpoint to a new range of 3% to 4.5%. This updated outlook reflects the roughly 370 basis points of outperformance delivered during the second quarter as well as stronger-than-anticipated results at the start of the third quarter with July RevPAR increasing 8.5% driven by continued strength in Hawaii, Key West, Austin, Santa Barbara and Washington, D.C. Based on current booking trends and recent operating performance, we now expect third quarter RevPAR growth to trend toward the upper end of our revised guidance range and exceed prior expectations. From an earnings perspective, we are increasing adjusted EBITDA guidance by approximately $25 million at the midpoint to a new range of $617 million to $637 million, while adjusted FFO guidance increases by approximately $0.13 per share at the midpoint to a new range of $1.90 to $2.00 per share. This increase to guidance also reflects an assumed increase in expenses of 3% to 4%, with a stronger demand environment and higher occupancy expectations across the portfolio driving increases in variable costs such as labor and utilities, partially offset by reductions in fixed costs with $11 million in benefits achieved from successful property tax appeals in the second quarter and a 20% reduction in property insurance premiums achieved during the June 1 renewal of our program. In addition, with respect to Royal Palm, our outlook assumes only a modest earnings contribution from the hotel in the back half of the year with more meaningful earnings growth expected in 2027 and 2028 as the hotel ramps towards stabilization. We are encouraged by initial booking trends with group and transient ADRs for the balance of this year, up 21% and 53%, respectively, compared to pre-renovation levels and tracking ahead of our expectations. These early results reinforce our confidence in the property's long-term earnings potential. Royal Palm is one of South Florida's premier lifestyle resort assets, and we continue to expect meaningful earnings growth as occupancy, ADR and ancillary revenues build through the stabilization period. We look forward to welcoming many of you to the property during our November investor tour and showcasing the exceptional transformation firsthand. Finally, the recently completed dispositions of the three non-core assets Tom spoke to earlier, are expected to reduce second half EBITDA by approximately $3.5 million, which has been reflected in our updated guidance. This concludes our prepared remarks. We will now open the line for Q&A. To address each of your questions, we ask you limit yourself to one question and one follow-up. Operator, may we have the first question, please?
Questions and answers
And our first question will come from Floris Van Dijkum with Ladenburg Thalmann.
So obviously, results are solid, and the sale of non-core makes it easier to see the quality of the portfolio. You've outlined in the past sort of upside in EBITDA. I think you said about $100 million of EBITDA over 2-5 levels simply from Hawaii and the Royal Palm, and then there's an incremental potential other $100 million probably from urban and from Orlando and other assets that you have. Maybe talk a little bit about the timing of when you think that potential $200 million of EBITDA could hit the bottom line in the portfolio?
Floris, thank you for your question. I appreciate all the listeners. I think the $200 million might be a little overstated. We've really focused more around $100 million. That would be sort of the $60 million to $70 million sort of recovery of Hawaii. And then, of course, as both Sean and I mentioned in our prepared remarks, about $28 million, plus or minus upon stabilization for Royal Palm. So I would sort of anchor you in that, and I would just step back and think again about what we've been saying for several quarters and the last few years, and we've been laser focused on reshaping the portfolio. We've sold or disposed of now 55 assets for north of $3 billion. We're really down to 21 core hotels and that's nine remaining non-core that only account for less than 5% of the value of the company. I think that's important. Three of those nine are part of the dispute, which don't really require a lot of discussion at this point and only about $16 million in EBITDA. The other six assets account for approximately $35 million in EBITDA, and we've got work streams underway. So we are making, as promised, significant progress, and we expect to be substantially complete by the end of the year. And then secondarily, we have been laser-focused and relentless on and really demonstrating our track record with these transformative renovations. We've said before and we'll say again, we think we can generate higher development yields over acquisition yields. And if you think about Bonnet Creek and the extraordinary success we're having with that property, if you think about the Key West two assets in our portfolio there, again, outstanding and outsized results, Hilton Hawaiian Village with the Rainbow Tower and Palace Tower renovations. And what's amazing about Hawaii when you step back, the market was largely flat, but we grew at Hilton Hawaiian Village up 12% and Hilton Waikoloa even though down slightly because it's coming back online after renovating the Palace Tower, again, still gaining share at Hilton Hawaiian Village pretty dramatically there. And then again, as you think about New Orleans and the work that we've got underway there in the third phase, Royal Palm, as we mentioned, having that completed on time. So very, very bullish as we think about the future, and I think strong execution on part of the team across the board, whether it's selling the non-core, whether it's obviously the transformative renovations, we continue to create value and a lot of that being organic, and we think that is a way that Park can really separate itself as we move forward.
My follow-up is actually regarding the capital allocation towards redevelopment or ROI projects. I mean you guys have done — had a really strong track record of getting, call it, 20-ish percent returns on invested capital in Orlando and in Key West. You've got a number of other potential projects in the pipeline as well. Could you maybe touch on the AMB Tower, the additional tower in Hawaiian Village, Santa Barbara and I believe Waikoloa and how investors should think about investment and deployment into those assets over the next two or three years?
Yes. I would, again, make the broad statement. I think we have an underappreciated iconic portfolio and when you step back and look at it, there really are improving fundamentals and I think outsized growth opportunities from 2026, the second half really through 2028, and those are markets in Hawaii, that's Miami, that's Key West, that's Orlando. And if you step back and think about Hawaii again, the Ali'i Tower, Oceanfront Premium Tower, a hotel within a hotel that's got its own check-in. We're going to close that down — 348 keys here in the coming weeks with the expectation that we will reopen that in early next year. I could not be more excited. I think it will again demonstrate Carl Mayfield and his design and construction team at Park and their extraordinary work, so we're excited. And again, the whole objective is closing that $60 million to $70 million gap that we've been talking about in Hawaii. Royal Palm, as we mentioned, is now open. And I would also reemphasize open largely on time as we communicated, as we planned. There are many hoteliers, some in our space and others outside that there are $4 billion plus or minus in development projects in Miami. The fact that we were on time, largely on budget is a real credit to our unique ability to both plan and execute these types of projects. As you think about Bonnet Creek, we've continued to get growth and market share gains there. We've taken Bonnet Creek from $62 million in EBITDA. We're tracking towards $105 million to $110 million this year, and we are still not at fair share. Let me repeat that again. So we're up 60% to 70% in cash flow but we are still not at fair share, very competitive comp set, but it still gives us the opportunity for additional growth there, which addresses your issue about us continuing to grow cash flow. So really excited about that. Key West continues to outperform as we outlined. Across the board, and again, very strong RevPAR index performance there as well. And Hilton Santa Barbara is another that we look at along with our partner that we think a comprehensive renovation there could generate outsized returns as well. So those are what I would call in the lineup, outsized opportunities for significant growth. The AMB tower we really don't want to talk about. Our plan there is to get it entitled. We do not think it makes sense to move forward with that at any point in the near future and are more focused on existing towers at this time. So with that, I'll stop. And so I know we've got other people in the queue.
Our next question will come from Duane Pfennigwerth with Evercore ISI.
Just given the sell-down of non-core hotels and the completion of the Miami asset, the Royal Palm, can you just speak to the longer-term trajectory of capital spending? Is this an above-average year, should it be down? Or is this a level we should think about sustaining going forward? And then just with respect to the upgrading guidance and across the sector, probably some of this is just good job expectation setting by the CFOs. But I guess what was your biggest surprise as you look at your own portfolio in 2Q? And specifically, what's embedded in the second half, maybe it's the same answer, maybe it's a different answer. What was the biggest surprise relative to your own internal expectations?
Duane, this is Sean. I mean I think it's safe to say it's something that we would think is coming down. From a maintenance CapEx standpoint, it's elevated because you've done some of these big ROI projects like Royal Palm. Preceding that, we've clearly done a lot of investment in Florida between Bonnet Creek and Casa Marina over the last couple of years prior to this year. So in the end, I think you kind of see it more of a — on any big ROI projects. It's more of a maintenance CapEx that's going to be south of $200 million kind of on a run rate basis. As we think about some of these projects and certainly think about an overall capital allocation strategy and ultimately what the market is kind of driving, maybe if we ultimately see a different project that makes sense from an ROI perspective, the CapEx could increase from there. But from a baseline, I would say it's coming down to below $200 million. Regarding your second question, I would say it was a broad-based surprise in a sense. I think the portfolio overall performed really well. I mean clearly, in Q1 earnings, we were talking about guidance, we still kind of were looking at somewhat of an uncertain world. And with gas prices going up and all the things we know about, you certainly had some hesitation there and some uncertainty. So the surprise was to see the resilience in the consumer and seeing—which translated to good leisure growth in the quarter for the quarter pickup really drove group for us, 700 basis points better than expected. So it was across the board. We do see an early good start to Q3, and we certainly think that can continue with some of these baseline macro elements here. That said, we will certainly want to be — make sure that we're continuing to exceed expectations. So we're setting things appropriately.
And Duane, I would agree with everything Sean noted. I would also echo that we're in the World Cup; we didn't think the World Cup would be a big contributor to Park, and it essentially performed as expected. We think, again, that sets us up for '27 not having some of those difficult comps that perhaps others may have.
And we'll go next to Smedes Rose with Citi.
I wanted to ask you first, Tom, you mentioned group pace is up 6% for 2027. Could you just talk a little bit more about that? Is that bookings, is that revenues? And kind of where are you now, I guess, in terms of percent of rooms sort of on the books for next year kind of relative to your expectations?
Yes. I would — Smedes, if you look at '26, as Sean said, we're 5.5%, 6% for the balance of '26. We were up 9.5% in the second quarter. We're looking to be up 15% is our pace in the third quarter, which is very strong. About 96% of our business is on the books, plus or minus. And I would say it's broad-based as we look just Q3. Hilton Hawaiian Village is strong, Casa is strong. Hilton Caribe, Santa Barbara, Denver, New York, Chicago. So again, we continue to see broad-based strength. As we look in '27 and just focus on the core, it's really over 6% and New York City is strong, double-digit, Key West, Miami off the charts, obviously, is part of the reopening. Hawaii double-digit, San Francisco double digit. So very encouraged as we sort of look out. And even beyond that, as we look to early '28, '28 looks encouraging as well. So we are very bullish. And again, we've been intentional. We've been really sharp shooters on the capital allocation front, making sure that we're investing in our core portfolio where we can make money. And particularly, if we can take the big boxes and anchor them with significant group it allows us to better yield those assets into much better profitability. And I think you're seeing results the last few quarters are great examples of that. Second quarter and we remain very bullish on the third quarter. But as Sean mentioned, we're going to be cautious. And I think certainly, our guidance reflects that.
And I would just add, too, in terms of the breakdown, I would say this year, group pace is more so on the occupancy side, but next year it is more balanced between occupancy and rate.
Great. And Sean, can I just ask you to — so you mentioned on the release of $11 million of positive real estate tax appeals. Are those kind of one-time? Or would you expect the property level EBITDA to be enhanced now with kind of a lower run rate tax basis going forward? Or maybe you could just sort of talk about the impact of those appeals?
I would say a large part — maybe a couple are more one-time. But really, the biggest driver of that was Chicago. I think those who follow Chicago know there's an annual routine where you appeal each year and ultimately get a benefit somewhere in the Q2 to Q3 time frame. If you recall, last year, we had about a $5 million benefit from an appeals win in Chicago. This year, it's about $6 million. So a little bit better than that embedded in that $11 million. The other ones were ultimately one-time in nature, one of them for an asset that we sold recently, Short Hills. So in a sense, if you look at our comp portfolio, which Short Hills is no longer in, the net year-over-year impact is not that dramatic. And I would say, when we think about the basis point margin expansion we have for the quarter, it was 80 basis points overall, but excluding that, it was about still 40-plus basis points better. So it will — as we look at fixed costs in general because that's certainly what we can directly influence a lot more — work being done in a number of areas not only on the tax side and working on the deals, but also on the insurance side. As you look at first half, we were probably on average about 1.5 points down year-over-year on fixed cost. And with insurance helping us in the back half of the year, it's still probably about 0.5 points below. So we'll still continue to benefit and offset any other cost increases we're seeing elsewhere in the operations for the rest of '26.
And we'll hear next from Dan Politzer with JPMorgan.
I was hoping we could maybe parse out — there's a lot of moving pieces in '26, but maybe it's a bridge to '27. Could you run through the big building blocks between Royal Palm, Hawaii, the non-core dispositions and the property tax? I think that would be helpful.
Certainly, a lot to discuss there. I would say, as you think about '27, we'll keep it pretty broad. Ultimately, we talked about group pace. I think that's a core foundation of visibility into next year. And certainly, we don't want to get too detailed now in terms of guidance for next year, but group pace being up 6% for the core portfolio is a good foundation. Tom talked about some of the markets that look pretty good. So we've got that as a foundation for the portfolio. Royal Palm ramp is certainly going to be a big story for us, and we're very happy with how the product turned out and how it's certainly getting some early looks and positive feedback. I would think as we think about its impact for next year, if you just kind of take what it did in '24 essentially before we put it under renovation last year, you kind of add that to our performance and think about '27, it's probably about 150 to 200 basis points positive impact to tailwind, just if you take, again, its performance in '24. Clearly, we want to exceed that as we ramp up into next year. It won't be fully stabilized, but you can certainly see potential for doing better than that in terms of helping the portfolio out next year. In terms of Hawaii, group pace for next year combined is 12.5%, Waikoloa is up over 20%. We're seeing great lift and good momentum from Waikoloa coming off the Palace Tower renovation. We expect to see Hawaii Q2 rate was up 11%, again, benefiting from that. HHV, of course, we've got the Ali'i Tower being renovated, as we mentioned. We'll come off of that in the later part of Q1 and certainly expect to see the benefits like we're seeing with Rainbow. And certainly, it's lapping the back half of '27 which would ultimately have rooms out of order for Ali'i Tower in the back half of '27. So positive momentum as we move into the back half of the year on the Hawaii side. I think even beyond '27, from a Hawaii standpoint, Waikoloa recently took in some business from an incentive group for the year that basically represents 10% of the revenue expected to generate this year. So a big program, a big win for the team as we think about the Hawaii recovery story over the next couple of years and certainly a good nugget there for Waikoloa.
Got it. I know that's a mouthful. I guess more high-level question, you've made good progress on the non-core asset sales. As you wind that down and there are fewer left and the contribution becomes smaller, is there any thought as to collapsing the non-core into the core and just having one clean number going forward?
It's a fair question. It's one that we'll study. I think, candidly, it will depend on where we are at the end of the year. We remain committed to cleaning up the portfolio and reshaping it. I do think as you look at the core, there's about a 63% difference in RevPAR from about $215 to $131. And if you look at margins on core, it's about 30% to 31% versus about 16% for non-core. So pretty significant difference there. We're confident we're going to continue to make significant progress and get to the point where the non-core is immaterial as we move forward.
Our next question will come from Patrick Scholes with Truist Securities.
A similar question I've been asking other companies on earnings calls: what percent of your hotels do you believe would qualify for Hilton's new RISE program or Marriott's equivalent program?
Clearly, this is a program that Hilton rolled out for the franchise and ownership community. When you think about our portfolio, it's heavily Hilton — call it 85% to 90% of our business is coming from Hilton. So I'd say that's the lion's share. We've got the rest kind of mixed between Marriott and Hyatt. In general for RISE, the immediate benefits are certainly helpful, but I'd say marginal. There are gating criteria that franchisees like us will have to meet, and we want to evaluate feasibility and timing to achieve the potential benefits. We expect it to evolve over time. Hilton is looking at ways to address owner profitability, and we appreciate their focus. We believe and expect this is one of many ways to do that, and they're working to identify ways to improve the operating model and owner profitability.
Okay. Go ahead.
I think it's good that the owner community is fully engaged with the leading brands and looking at ways to reshape the operating model and improve economics. Owners have had a tougher run in the last five to six years. The fact that we're engaged at the table and looking at whether it's through AI initiatives, the RISE program or Marriott's equivalent makes sense. At the end of the day, the brands' business models don't work unless they have a very active, engaged and successful owner community. We've got to figure out a way for margins to improve and for cash flows to grow. I'm glad the brands are committed to that discussion, and business leaders, whether public or private, are looking at ways to reshape that operating model. So it's a positive, and it really goes beyond just the RISE program.
Our next question will come from David Katz with Jefferies.
Just a general question. Clearly, your stock and those of your peers are up a lot in the last 12 months. Do you contemplate using that upside — we've only talked about non-core asset sales, but is there a way to play offense with that improved stock price? For example, using your stock to make acquisitions or to reduce leverage?
David, I appreciate the question. Nothing would make the team happier. We have obviously played defense and I think we've played it effectively. We've reshaped the portfolio, getting it down to our core because that's where the real value is. The hope and expectation is that as the company continues to rerate, we can get the multiple up and get our cost of capital down, and we would be very interested in looking for unique opportunities. We're not alone in that. As you think about luxury and leisure, it's very competitive out there. In the meantime, we're reinvesting in our core portfolio where we believe we can generate outsized returns, and the results in Orlando, Hawaii, Key West and Santa Barbara speak for themselves. You'll continue to see us focused on reshaping with the expectation we'll be able to go on offense. Whether that's in '26 or '27, it's coming and we look forward to those days.
If I may just follow up, it sounds as though the notion of just using whatever stock is available to reduce your leverage is not high on the consideration list?
I wouldn't say that, David. As we've said on the non-core, our priority is taking those proceeds, reinvesting in transformative ROI projects. We've identified those with the greatest potential and Ali'i will be next in the queue. We're also taking excess proceeds and paying down debt. The other way to reduce net debt-to-EBITDA is continuing to grow EBITDA. As Sean pointed out, we've done that, and the reality is to continue to execute. I would put our performance up against anybody else. We've been consistent in our messaging and executing, focusing on the things we control.
Our next question will come from Chris Woronka with Deutsche Bank.
Tom, as I look at your first half performance, it strikes me that two markets comprise about half of your EBITDA from four hotels. That doesn't include Miami. You said there aren't many acquisition opportunities now, so reinvest in hotels. Is diversification something you need or want to do today? The only near-term option might be selling a portion or JV interests. Any thoughts on that and how important expanding market diversification is?
In a perfect world, you'd want more diversification. But if you think about where we're getting outsized returns — Hawaii, Miami, Key West, Orlando, Santa Barbara — that's probably north of 60% to 65% of EBITDA in growth markets. We like our positioning. Hawaii is fee simple real estate with a huge moat and is difficult to replicate. As the stock rerates and the cost of capital comes down, we'll look for other opportunities, but we like our positioning right now.
Understood. Quick follow-up: is the W in South Beach going over to Hilton and Waldorf, does that change your underwriting for the better at Royal Palm since you lose a Marriott competitor basically?
Yes. Incrementally, it helps from that standpoint. I'm excited for Hilton in getting the Waldorf down there. I think that's great for the submarket. We know Miami well; there's a lot of luxury product. Adding Waldorf to the mix will be great. We can't wait to show the investor community Royal Palm and the transformation that's occurred there. It is, to steal a phrase from an executive at Marriott, stunning, and we are very proud of it and well positioned in the future there.
And we'll go next to Robin Farley with UBS.
Kind of a longer-term question. You have pretty staged growth in the next 24 months with a lot of these renovations coming on. When should we expect news about your next projects? Could that be as soon as this year or not necessarily something you'd announce that soon?
We've tried to be very proactive. We've ramped up CapEx the last few years intentionally. We'd probably get back to what we would call a normal run rate. Ali'i makes sense, and Santa Barbara is another asset we would certainly huddle with our partner on; we think there's an opportunity to take that up to the next level. We're thoughtful — study scope, timing, minimizing disruption. There are cases like Miami where it was so complex we had to close the hotel. With Ali'i, we're going to close that part while keeping the full campus operating. The team is experienced and seasoned, and I think we have a demonstrated track record that's among the best in the sector.
Moving next to Rich Hightower with Barclays.
Tom, you mentioned the private market bid for luxury and leisure is still fairly competitive. What are you seeing in general terms there? And is there any structural impediment to monetizing at some point even one of the core hotels, given the strength of that private market bid?
We've always said the team is not entrenched and we'll do what's in shareholders' best interest. We get occasional calls about Hawaii. It's complicated to do a joint venture, not impossible but complicated. Generally, responses have been if you want to buy Hawaii you buy Hawaii; management or the Board are not entrenched. We'll continue to look. I'm curious to see how the former strategic portfolio that is being marketed performs and pricing discovery. It's a healthy process with a lot of capital chasing; price discovery is a wonderful thing and may lead to other deals. We're excited to observe how that unfolds.
And our next question will come from Jack Armstrong with Wells Fargo.
Can you talk through the operating expense expectations coming up? Sixty basis points relative to RevPAR of 225 for the full year? What were some of the expense controls that brought you to that result? And can you talk through some of the changes in those expense components versus your prior expectations?
Jack, this is Sean. As we think through the expense performance, the biggest driver was occupancy gains we saw. Occupancy was about two-thirds of the RevPAR growth and about 75% of the year-to-date growth. With that backdrop of about 2% growth on an occupied room basis, we saw some elevated expense along with elevated RevPAR. Given this, we were pleased with flow-through: rooms flow-through greater than 70% and F&B was really strong at 65%. Year-to-date increase in expenses is thus far at about the midpoint of our guide, which leads to the back half being around the same amount at the midpoint of that 3% to 4% guidance for expense increases. Included in the back half is about 120 basis points contribution from Royal Palm as it ramps back up and brings on operating expenses above the carry that we had last year. Overall, the managers did a good job on cost controls and flow-through. But with more occupancy, you'll have more labor and labor is in that 4% to 5% growth range, so managing through that is key, and we expect the teams to continue to do that.
And we'll go next to Michael Herring with Green Street Capital.
Just a follow-up on Bonnet Creek. You mentioned the RevPAR index share has been pretty strong there. Are there any external factors such as competitive supply or other hotels in the market that were under renovation that might weigh on the near-term growth?
Not that we're aware of. We love our positioning at Bonnet Creek. Orlando is the most visited destination in the country — expected 77 million to 79 million visitors this year. We love our positioning there with the three assets we have, particularly Bonnet Creek and the roughly $220 million we've put in. What we've seen in ramp-up, EBITDA growth and market share is strong. Ironically, we're still not back to fair share given the competitive landscape, so we see additional upside and are excited about the future for Bonnet Creek.
This now concludes our question-and-answer session. I would like to turn the floor back over to Tom Baltimore for closing comments.
We appreciate everyone's time today. We look forward to seeing many of you in upcoming conferences, and we look forward to hosting you at Royal Palm in our investor tour in November. Have safe travels.
Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.