Greetings and welcome to the Park Hotels & Resorts Second Quarter 2017 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Mr. Ian Weissman, Senior Vice President of Corporate Strategy. Thank you. You may begin.

Thank you, operator, and welcome, everyone, to the Park Hotels & Resorts Second Quarter 2017 Earnings Call. Before we begin, I would like to remind everyone that many of the comments made today are considered forward-looking statements under federal securities laws. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed, and we are not obligated to publicly update or revise these forward-looking statements. In addition, on today's call, we will discuss certain non-GAAP financial information, such as FFO and adjusted EBITDA. You can find this information, together with reconciliations to the most directly comparable GAAP financial measure, in yesterday's earning release as well as in our 8-K filed with the SEC and the supplemental information available on our newly revamped Website at www.pkhotelsandresorts.com. Additionally, it's important to note that all financial results for 2016 are on a pro forma basis, which takes into account post-spin adjustments, including the new management fee structure, and presents the results of our portfolio as it stands today. Reconciliations to the closest GAAP financial measure in our 2016 combined consolidated financial statements, which were prepared on a carve-out basis and do not contain these pro forma adjustments, may be found in the supplemental financial information available on our Website. This morning, Tom Baltimore, our Chairman and Chief Executive Officer, will provide a brief review of our second quarter operating results and outlook for the remainder of the year as well as update you on our strategic initiatives. Sean Dell'Orto, our Chief Financial Officer, will provide further detail on our second quarter financial results and most recent activity as well as provide an update to our annuals earnings guidance. In addition, Rob Tanenbaum, our Executive Vice President of Asset Management, will be joining for Q&A. 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 good morning, everyone. Before I discuss this past quarter's results, I want to reflect for a moment on the last 15 months as May represented my one-year anniversary of launching Park Hotels & Resorts. It is not often you are presented with the opportunity to bring together a group of talented men and women with a common goal of building a world-class organization from the ground up while working toward delivering superior returns for investors. Now just over one year later, I am incredibly proud of what we have accomplished with the necessary tools in place to advance the strategic objectives we laid out at the time of the spin. Most importantly, the team is nearly fully staffed with 80 superb men and women working in all disciplines in our corporate office. On the systems side, we are in the process of migrating off Hilton's IT platform, which will be completed over the next several months. And we continue to build out our own business intelligence tools to help us better analyze our portfolio and work closely with our operating partners. These steps take time. However, they are critical for developing a best-in-class organization. And while we believe it's still too early to see the results of much of what we've been implementing over the last two quarters, we believe that we have laid the foundation of a real estate focused operation poised for success in 2018 and beyond. In terms of our strategy, as we have previously highlighted, a key component is to drive internal growth by achieving sustainable expansion of property level margins across the portfolio. The first step in this process has been to identify potential areas of improvement and make changes as needed at both the corporate and property level. Human capital…

Thanks, Tom, and welcome, everyone. Looking at our results for the second quarter, adjusted EBITDA was $217 million, while adjusted FFO was $173 million or $0.81 per share, both of which were slightly ahead of our own internal forecasts and consensus. As Tom noted, portfolio performance was largely driven by continued strength across both Hawaii and Orlando. However, San Francisco proved to be materially worse than we had expected, accounting for 190 basis points of RevPAR drag during the quarter. Overall, across our top 10 assets, hotel adjusted EBITDA fell 3.4% during the quarter, and margins were down 110 basis points, with 70 basis points of that decline related to our two assets in San Francisco. Excluding these two assets, EBITDA growth across our top 10 assets would've been 3.7%. Very briefly on our balance sheet, there were no major changes to our capital structure during the quarter, with net leverage still running at just 3.8 times. And we remain well positioned from a liquidity standpoint with more than $1.2 billion available between our revolver and available cash. Turning to the dividend, on July 17th, we paid our second quarter cash dividend of $0.43 per share. And as of last Friday, our board declared our third quarter dividend of $0.43 per share to be paid on October 16th to stockholders of record as of September 29. This dividend currently translates into an implied yield north of 6.5%, maintaining its position as one of the highest yields in the lodging REIT sector. During the quarter, we invested $49 million on capital improvements, nearly 80% of which was for guest-facing areas within our hotels, taking our year-to-date CapEx spend to $86 million. More specifically, we completed the third phase of guestroom renovations at the Hilton San Francisco, which included case goods, soft…

The floor is now open for questions. [Operator Instructions] Our first question today is coming from Rich Hightower of Evercore ISI. Please go ahead.

Hi, good morning, guys.

Good morning, Rich. How are you?

Good. Thanks. Tom, you spent a lot of time in the prepared comments talking about San Francisco and the impact on the first half numbers and then also the impact on what will happen in the second half. Could you spend a little more time maybe talking about trends for some of the other hotels, the other markets in the top 10 and sort of what the back half is likely to play out and maybe divide that between group and transient as well?

Sure, Rich. I think the first is probably Hawaii I think continues to be just a really strong performer for us. If you look, it's up 3.5% sort of year-to-date from a RevPAR standpoint. We expect it's going to probably finish the year probably mid-single digits, probably in the 4% to 5% range. Group pace is going to be slightly down in third quarter there, I think running about 9%, and then I think a really bodacious whopping fourth quarter probably north of 50%. So for the year, overall group pace, as we've shared in previous quarters, it's probably in that 18%, 19% range. So it continues to be just an extraordinary performer for us. As I said in the prepared remarks, we continue to see lift coming out of Japan. Obviously, that accounts for about 17% of all arrivals into the islands and accounts for probably about 23% of our business there at Hilton Hawaiian Village, so very strong, both in the group side as well as on the transient and leisure side. And when you look at the potential there, again, we've got 22 acres, nearly 3,000 rooms. I can't think of a property more iconic, candidly, in our industry. But we still believe that there's considerable upside as we're going to be looking at sort of master planning that property in the future. Orlando, as we talked earlier, been a really strong -- and Key West, both been really strong performers for us so far. We -- both are down in third quarter. Obviously, the group pace is considerably lower. They do pick up in fourth quarter, so certainly feel very good about those assets. Again, we expect to probably finish the year low to mid-single digits in RevPAR there, so clearly strong markets for us. New…

All right. That's very good color, Tom. Thanks. And then one quick follow up. Just as you think about the margin upside, I get that it's more or less independent from RevPAR over the next 12 to 24 months. I'm curious, though, if we do reach an inflection point in one direction or the other kind of beyond this 1% to 2% environment we're in, is any part of that margin story impacted by RevPAR if we do get outside this sort of tight range we've been in? Just wondering about the sensitivity there.

Sure. Obviously, given the high operating leverage of this business, there's clearly a sensitivity. Now the other side, as you know, Rich, if we begin to get breakout RevPAR, then clearly, we think certainly that can expand to the extent that things soften. And I'm going to -- Rob is -- and his team have just continued to do a phenomenal job as we partner with Hilton to look for opportunities. And I'll ask him to just briefly give you a few nuggets because I think I'm sure listeners are wondering how we can sort of move guidance down but sort of still maintain and raise guidance. And I think we've got a really plausible strategy. We're beginning to see really just the beginning, and I emphasize beginning, of some of the great work there. It's going to take time. And I think, really, as we've said, more benefits coming in '18 and '19, but we're really laying the foundation for margin improvement there. And we've always believed that it's real and it's sustainable over time. So, Rob, why don't you give him a few nuggets there.

Good morning, Rich. Working in collaboration with Hilton, we've identified opportunities to further drive our margin. And more specifically, we believe there's approximately $11 million of EBITDA to the portfolio for the period of May through December. And that comes in four buckets under cost savings, revenue management, food and beverage and ancillary revenue. Under the cost savings side, there's approximately $6.5 million associated with that, and it's in the areas of property insurance costs, which have come down quite dramatically through both teams working together expeditiously to save approximately $4.5 million annually. $2.6 million of that will be realized now because the program came into play in June. We're also looking at open management positions, PPO usage and complexing positions throughout our portfolio if that's appropriate. And last but not least within the cost savings side, we really believe that we've been renegotiating contracts, and we've been reducing food costs. So we think that'll bring it towards the $6.5 million there. From a revenue management perspective, we've been reclassifying room types, working to improve our efficiency in the upsell program on check-in and reconfiguring rooms to further meet the market needs. These initiatives alone will generate $1.4 million in net revenue for the remainder of the year.

That's great.

Approach to reviewing food and beverage pricing, we're continuing to look at new opportunities to install both grab and gos [ph] as well as mobile ordering systems. And in addition, we're increasing banquet service charges throughout the portfolio. These initiatives total over $2 million in revenue from May through December. And from an ancillary standpoint, we've been successful in increasing both our resort fees and parking rates, while our Director of Retail has been instrumental in leasing vacant space, renegotiating parking agreements, renewing expiring leases and bringing them up to current market rates. In total, we believe this area represents $3.6 million in revenue from May through December. We're really excited about the chain that we're bringing in place here and that we're seeing progress. And we just continue to chip away at all opportunities.

All right. That's great color, guys. Thank you.

Thank you. Our next question is coming from Brian Dobson of Nomura Securities. Please go ahead.

Hi, guys. Do you think you could talk a little bit about the seasonality of RevPAR in the back half of the year, particularly the citywide schedule? And then in addition to that, any kind of new ROI investment opportunities that you might be eyeing in the back half through the first half of 2018? Thanks.

Brian, as you look at Q3, a going in position, obviously, given the calendar shift, obviously, the Jewish holidays plus, obviously, July 4th, we really thought we'd probably be flat as we look out for some of the reasons that we've already articulated. I would share with listeners, and again, a month doesn't make a quarter and certainly doesn't make a year, but as you look at July, and just shows you how quickly things can turnaround, we expect it to essentially be slightly positive. But we're -- our preliminary numbers for July are coming in probably close to 1% in RevPAR growth, largely led, again, by the rebound of San Francisco up 9% to 10% in RevPAR. So a little bit of a green shoot there, not unexpected. And our group pace in third quarter of San Francisco, again, north of 20%, that does reverse into fourth quarter. So again, for the year, clearly going to be a negative for the year, obviously, for the story that we all know, but certainly I think a positive from that standpoint. As we look at sort of group pace, we began the year thinking we were going to be at the end of the first quarter up about 1%. We really fell down to about zero just slightly negative, and again largely driven by San Francisco. You take that out, we're up about 2% in group pace. So it's a little bit of a mixed bag, third quarter, again, Orlando down. You're seeing, obviously, Hawaii I mentioned certainly down in group pace. That picks up pretty dramatically and reverses itself in the fourth quarter. So overall, I would still say that we're probably flat for the year as we look out. And again, taking out San Francisco, you're up about 2% plus or minus as we look out.

Great.

Regarding ROI projects, listen, we are combing through the portfolio and really focused on, obviously, the two that we think are value add and, obviously, Bonnet Creek and making great progress there, expect to break ground the middle of next year and deliver in late '19. Obviously, we're making progress on converting the DoubleTree, the Fess Parker DoubleTree to a Hilton. We think that branding there is going to be a great opportunity. We're also spending a lot of our time on recycling capital. We think, as we look out at our portfolio, obviously, our top 25 hotels account for north of 80% of our EBITDA. We've got a number of assets. And we've identified really the top 10 to 15 that are lower RevPAR, RevPAR probably 25% lower than the portfolio average. They're capital intensive. We think it's a far better use of capital to recycle that capital and bring that capital back home. Given the building gain tax, obviously, the 1031 will be the vehicle here to continue to upgrade and strengthen the portfolio. So you'll see more to come on that. I would say that that, again, is a real value add. And really, recycling capital out of slower growth markets into higher growth markets in our view is a really prudent use of management's time and will create value for shareholders.

Yes, thank you. That's really helpful. And then in terms of your margin and your revenue enhancement initiatives, do you see those really hitting full stride call it halfway through next year?

I think that, as we've said, we've said obviously 150 to 200 basis points. And as we look out, we see 75 basis points next year. And Rob and team, the team is largely fully staffed now, a very talented group of men and women. And we're getting at these initiatives in partnership with Hilton. And we certainly expect to be held accountable to deliver those 75 basis points next year, irrespective of the climate, but the team is committed and working their tails off.

Great. Thank you very much.

Thank you. Our next question is coming from Anthony Powell of Barclays. Please go ahead.

Hi, good morning, guys. Just --

Morning, Anthony.

Morning. On the margin improvement, you mentioned a few times that a lot of the margin improvement over time will be driven by adding more group business. Can you still add more group business if industry-wide group demand is kind of flattish, as it has been over the past few years?

No doubt, Anthony, it's a challenge. And listen, as I said in the prepared remarks, we think, again, partnering with Hilton -- and I want to give Rob and his team a lot of credit. By having, one, sort of these dedicated sort of group hunters that we're now onboarding, whose primary responsibility is to really sell the Park portfolio, and when you think about, again, these iconic assets that we have that are well positioned for group, we think it's imperative that we move the needle, as we've talked about in the top 25 from 31% up to 35%. It allows us to effectively shrink the hotels, right, so that we can yield the remaining inventory. In addition to that, it allows us to really grow the group catering revenue, which is what you really saw in the first quarter when, again, group was up 7%, and we grew that I believe north of 13%. So it's challenged, no doubt, but we think we have a unique portfolio. And we're certainly committed to the task ahead. So we know that we'll have more information for you as we move forward in the coming quarters.

Got it. Thanks. And your RevPAR growth outside of your top 10 assets was actually pretty solid. What do you think is driving RevPAR growth at some of those hotels? And I know, for some of the hotels out of the top 25, they're noncore, but what are you learning from some of the RevPAR growth numbers and those smaller hotels I guess?

Yes, I think one of the things that we've all noted here is, obviously, the urban and upper scale have certainly been more challenged. And I think part of that has been more supply growth added. Clearly, some of those suburban or just sort of right outside of the CBDs are still holding up better. So there's no doubt that there remains value in the portfolio for us. What you want to see us do and what we believe passionately is that portfolio management is terribly important and that you need to go through and prune and cull the portfolio over time and look at those assets that are in slower growth markets that are capital intensive and look at their performance vis-a-vis their competitive set. So there's opportunity there. And focused, as you can imagine, on the top 10, the top 25. But even beyond that, we think there's opportunities to streamline operations. And in some cases, can we take some of the protocols from the select service operating model and apply that to those type of hotels and improve the both top line as well as the bottom line? So you'll see and hear more of that in the coming quarters as well.

Great. Thank you.

Thank you. Our next question is coming from Ryan Meliker of Canaccord Genuity. Please go ahead.

Hey, good morning, guys. I just had one question based on a comment that you made earlier. And that was just with regards to acquisitions and dispositions. You mentioned, Tom, that you would expect any transactions to be FFO neutral as you offset acquisitions and dispositions through like kind exchanges. I guess that would kind of imply that you're buying and selling at the same cap rates. Is that kind of your expectation, or were you looking to prune your portfolio from maybe what you consider lower quality or noncore, which often trade at higher cap rates than the assets that you've identified that you want to buy, which are some of these larger convention center oriented properties?

Ryan, I always enjoy our conversations and your insightful observations. We're not at all looking to be inconsistent in our messaging. We understand that you've got to find the balance between what may be slight near-term sort of dilution if you're selling noncore assets, again, capital intensive at certainly at higher cap rates and then going and buying higher quality assets that obviously are going to trade at a lower cap rate. So we understand that. I think as part of that analysis, two things that you've got to keep in mind. One, the amount of CapEx that we would be saving on any transaction and also the amount of friction management time cost that we would be saving. Take into account our European operations. We've got resources over there. There are tax issues. There are other things that we can reduce and/or eliminate by bringing that capital home. So I think you've got to look at it from a balance perspective. Rest assured this team is laser focused, as I said in the prepared remarks, of making sure that we're minimizing or eliminating any dilution. And we know ultimately that we've got to be continuing to maintain that dividend and also keep a low-levered balance sheet. So we understand the high-wire act. This is an experienced team in those endeavors. And that's why I've said 10 to 15 assets out of the box so that we'll be thoughtful in executing and will begin that marketing process for many of these noncore assets in the fall. So we'll certainly keep you posted.

Okay. That's helpful. And that does make sense. Thanks. And then just as a quick follow up, we've talked a little bit about margins already on the call, but if I recall correctly, you guys have highlighted that the majority of your margin growth opportunity is coming through kind of mix shift and driving RevPAR. But as we look to the guidance implied in the back half of this year, you're a little more conservative on RevPAR growth, but you're holding margins pretty solid, indicating that maybe there are some things on the bottom line that aren't driven by RevPAR growth that could be meaningful as well. Is that a fair conclusion from some of the comments you've made as well as the guidance you issued?

That's a very fair -- and again, as you know, Rob went through for a couple minutes there just walking through some of the initiatives. A great example, to your point, is insurance. Sean Dell'Orto and the risk management team over at Hilton have also been working their tails off to reduce the insurance costs, which obviously we think a few million dollars in the year for the year as an example of that. So make no mistake. The big margin improvement will come as we group up and the mix shift, but there is also low-hanging fruit here on cost containment and all the other initiatives that Rob walked through and parking and leasing. Again, having a dedicated team focused on activating the real estate is one of the benefits, obviously, of the spin and I think one of the great benefits that this team brings as we move forward.

Sounds good. Thanks, Tom.

Thank you. Our next question is coming from Robin Farley of UBS. Please go ahead.

Good morning, Robin.

Great. Thanks. Good morning. I know you've given some color on the group outlook in '18 for some of the specific markets, but I don't know if you've commented overall how your 2018 group bookings are pacing versus '17. And I wonder if you could give that companywide and then also maybe excluding San Fran. Thanks.

Yes, our group booking pace as we look out to '18 right now is low to mid-single digits, as we look right now. Obviously, we would expect that to be even greater with San Francisco. Again, keep in mind, with San Francisco next year, as we look, we're probably down that market overall in citywides is down 30% or more this year, should be up, depending on who you believe, probably up to 730,000 room nights next year. So you're up about mid to -- low to mid-double digits, as I said in the prepared remarks. So I would say, excluding San Francisco for our portfolio right now, we're in that low to mid-single digits increase in group pace at this time.

And with San Francisco in there, what would '18 in total look like?

I think it certainly would be slightly higher than that. Again, I think you get the real pop as you look out in '19, which obviously would be significant, given the fact that you've got 1.2 million citywide room nights on the books. We've got a fortress position, given the fact that we've got 3,000 rooms and 160,000 square feet of meeting space.

And then for the '18 group, for what you have on the books, how does that pace look versus what you had a quarter ago or what you were pacing a quarter ago? In other words, is it up at the same rate?

Slightly -- yes, slightly down. I'd say slightly down right now. But those things are choppy and moving. And the example I gave in San Francisco, right, it had a horrible second quarter, but already in July, we're having a strong July, and obviously, we'll certainly be better in third quarter. It will be again choppy again in the fourth quarter. So look, we at Park coupled with our partners at Hilton are focused. We believe that grouping up and increasing that business and effectively shrinking hotels and better mix shift is going to be critical to our long-term success. So it's a high priority for this team.

Okay. Great. Thank you very much.

Thank you. Our next question is coming from Jeffrey Donnelly of Wells Fargo. Please go ahead.

Good morning, folks.

Morning, Jeff.

Maybe I could just build on Ryan's earlier question I guess I think because one of the early tenets of Park has been that there was a story in RevPAR margins maybe being not managed as efficienty as they could be. So I was just curious, as it relates to the lowering of the top end of the 2017 RevPAR guidance, was that driven by maybe a more tempered outlook for the broader market, or is that maybe you guys gaining a sharper sense of what you're able to achieve in 2017 relative to your markets?

Yes, I would say, Jeff, that it's largely the San Francisco story. Again, as you look at the overall group pace, again, we entered second quarter at about a 1%. If you take out San Francisco at that point, it was 2.4%. And if you look at sort of the end of the second quarter, it was then -- it was slightly negative. So you take out San Francisco, it's about 2%. So look, we're 88 months into this cycle, as you know as well as anybody. And we're certainly getting longer in the tooth. I do believe, if we can -- if there are some real positives out there, right, nonresidential fixed investment growing up, expected to be 4%, up 3.7% next year, GDP in that 2% to 2.5%, again, a weakening dollar, which should help on the international side and consumer confidence rising, spending rising. So there are a lot of things I think to be encouraged about. The stock market continues. The issue is that, for all of those wonderful data points, we're just not seeing it translate yet into -- and particularly into the urban and upper scale. That doesn't mean that it can't. We tend to lag, as you know. And if we could get a little bit of momentum, particularly on this business investment spending, I think that's just a critical component for lodging. And I think that'll be huge for our growth as we move forward. So it's largely San Francisco. No doubt that things are choppy. And we see it in our own portfolio. And we again -- while we've lowered the top line, keep in mind, and a credit to the team and Sean and Rob and the other men and women on the team and how hard we've been working to be able to still raise -- largely raise guidance for the other components, either maintain or raise. So we're excited about our future, and we realize that we've got to earn our credibility over time. And we're up for the challenge.

Thanks. And as a follow up, I saw that the G&A assumption in guidance was expected to be about $3 million lower than it was previously. Is that recognition that your G&A run rate is going to prove lower than expected now that you've had a little more time, or is it just simply timing, or maybe is it an effort to respond to the lowered RevPAR outlook?

Hey, Jeff. It's Sean. It's just recognition that we had some vacancies we're filling and for the first half of the year. So we've always kind of had that as a bogie out there, but kind of executing against that and filling the positions over the year, recognizing, again, that we're kind of halfway through the year and only got 20 on the books, so I think just kind of pulling that through for the year. But by the time we get to Q4 and into '18, we certainly think we'll kind of be more in that run rate.

Okay. Thanks, guys.

Thank you. Our next question is coming from Floris van Dijkum of Boenning & Scattergood. Please go ahead.

Great.

Hi, Floris.

Thanks, guys. Tom, a question for you about -- as you're looking to boost margin and grow your comp EBITDA, maybe if you could comment on the cancellation fee initiative by Hilton and also on your initiative to add your resort fees and other ancillary fees to the hotels.

I am really pleased to see both Hilton and Marriott. I think it is long overdue. If you take New York as an example, cancellations have been averaging 30% to 40%, particularly in the last seven days. That has impacted rate. It's impacted certainly corresponding profitability. We're the only industry that essentially is given sort of a free option. So I think I applaud them. I think it is the right first step. I do think that, in my view, that that's the first step in what will be a longer journey to figure out some way to, one, I think provide flexibility for those travelers who want it, but at the same time have, whether it's change fees or advanced purchases, we've got to figure out some way so that we've got better control over our inventory. So I think it is long overdue. I have been a strong advocate for this for some time. And I'm glad to see that they've taken that leadership position. I suspect and hope that many of their peers will also follow. So there's nothing but positive feedback from me on that standpoint.

Great. And so do you have an expectation maybe of what that could mean to the bottom line? And also, maybe the -- you mentioned in your earlier calls on your resort fees that you're looking to charge, maybe if you could expand on that?

Yes, I think on the cancellation, it's a little too early. We'll be tracking that and have more to report I think in the coming quarters. Clearly, you're going to see it anyway I think first and foremost in these -- in the big CBDs, particularly in New York. As it relates to resort fees, I think Rob gave a number in terms of we think that's an opportunity. And we're going to continue to evaluate and push it where it's appropriate. And, Rob, I don't know if you have that number that you gave earlier, but --

Sure. So our total ancillary fees would be up $3.6 million from May through December. But more specifically to the resort fee, we increased it at three hotels, but we're also focused on increasing the capture rate of the group customers at these hotels for resort fees. So we estimate that to be an $800,000 benefit through the remainder of the year.

Great. Thanks, guys.

Thank you. Our next question is coming from Chris Woronka of Deutsche Bank. Please go ahead.

Hey, good morning, guys.

Hey, Chris. How are you?

Hey, good. Morning. You guys talked about strategy, group up a little bit longer term. And also, you mentioned selling some of the bottom feeder assets. I guess, in that context, should -- how should we think about maybe changes to the composition of the portfolio in terms of urban resort? It seems like the resorts are much more in favor or certainly outperforming these days. Is that something that plays into your thinking on the 1031 acquisition?

Absolutely, Chris. Again, as you think about our strategy, and I see sort of four levers of growth, right, these embedded ROI opportunities that we've talked about, obviously single assets. And again, we're focused on upper upscale and luxury assets in the top 25 markets and premium resort destinations. We want big assets, and we want assets greater than $100 million, where candidly, we think there's less competition. They're going to trade at a higher cap rate. And that's an area that we think over time as we earn our stripes and get a premium multiple that we'll be in a position to compete for. I know our acquisition team we continue to watch and monitor. I wouldn't say we're an active acquirer today. But those assets clearly will be in our sweet spot as we grow. And in addition to that, we're certainly going to look for brand and operator diversification. We love Hilton, love the relationship. But we clearly will be looking to add other family of brands to the portfolio. Certainly Marriott and Hyatt are at or near the top of the list.

Sure. Great. And then yes, just as we think about kind of group, Hawaii I think pretty well understood. It's a good story this year, lot of good leisure demand. But do you think it's benefitting at all from San Francisco? I'm just trying to figure out, as we think about next year, the pluses and minuses because I think some of the markets probably benefit, and then that potentially reverses next year, right?

Yes, I think San Francisco's going to be a net positive, again going to be down north of 30% this year. Clearly, depending on who you talk to, we think low to mid-double digit. I've heard some reports as high as 20% or more. So clearly, that's going to be a backdrop and a positive. Hawaii continues to be the -- just the gift that keeps giving. And I see no reason for that to continue, given the quality of the two extraordinary assets that we have there. As we look across the portfolio, Chicago should certainly be stronger next year, expect obviously New Orleans to certainly be stronger than it is currently. Love our positioning, as we've said, in Florida. We think, obviously, Bonnet Creek there, the Hilton, Waldorf-Astoria just have enormous potential. And as we add more capacity there, I think that's only going to put us in a strong position for the future.

Okay. Very good. Thanks, Tom.

Thank you. Our next question is coming from Bill Crow of Raymond James. Please go ahead.

Hey, good morning.

Good morning, Bill.

Tom, the first question is on supply, if you could just think about your markets, kind of a weighted average. Do you think you peak competitive supply deliveries in '18, in '19, or past that point?

Bill, I would say one of the fundamentals of tenants that we've had is that we enjoy less supply exposure than our peers. And I think we've used the phrase sort of 50 basis points vis-a-vis our peers. I think we've been about 2.2% versus our peers at about 2.7%. So think about some of the markets. Obviously, Orlando, clearly higher barriers to entry, San Francisco higher barriers to entry, Hawaii. So I clearly think that's a benefit to our portfolio and certainly a competitive advantage for Park. Trying to say when the -- each market because I really do think you've got to look at sort of each market. I think, on average, probably '19 sort of looks and feels. But again, I'm looking on an overall average basis. You could have some markets that I think are going to peak this year or next year. But I think, on average, '19 looks and feels about the right number to me.

Okay. A two-part follow up on San Francisco. I was a little bit surprised to hear you say you thought the third quarter would be stronger than the fourth quarter. That just -- it feels like it's a little bit counter to things that we've heard from other folks. So I guess, what's driving that? And then the second -- especially with the calendar issues and the Jewish holidays. The second part of that is you're surprised by the weakness there and in the quarter for the quarter bookings. I'm just wondering what is going on with both leisure and international inbound travel into San Francisco.

Yes, I'd say the thing in San Francisco, again, it's just a story of group business. You're seeing really wild swings this year. And if you look at the second quarter, our group pace, both properties, it was probably low to mid-30% negative. And again, we're expecting just Hilton San Francisco the group pace is up I think close to 29%. So again, we're going to go from negative 12% to something positive. And again, as I mentioned, July early numbers are 9% to 10% in San Francisco. That -- let me remind listeners because we've said it. That will reverse. And so fourth quarter then is going to be down probably 20% plus or minus. So the end of the year, we still will be negative low to mid-single digits in San Francisco. But again, that's -- when I talk about this, I'm talking about pace. So those -- that obviously can change here depending on pick up. So you're just -- you're seeing a little bit of the peaks and valleys. And this is one of the challenges of having a big portfolio. We've got 10 assets of north of 125,000 square feet of meeting space. So that group base becomes so, so important to our business model as we move forward.

And no surprises on leisure or inbound international front.

If you think about leisure, we were up in the first -- we were up last second quarter I think almost 8%. And so transient was up almost I think 2.8%. And then group was down the 6.3% as we look across our portfolio. Leisure's been a strong part, again, given the footprint we have, right, as you look at what we've got. And if you look at Florida and what we've got in Hawaii, that's I think a real competitive advantage for us and the barriers to entry there. So the overall, things are still net positive. We do have pockets of softness. There's no doubt about that. And we certainly saw it in our portfolio. You've got to -- I think you've got to kind of disconnect a little bit of the San Francisco story because it's really just isolated to what's happening there with that convention center. Great market, huge barriers to entry, love it long term, and thing we're going to be really well positioned.

Okay. Thanks for your time.

Thank you. Our next question is coming from Stephen Grambling of Goldman Sachs. Please go ahead.

Thanks. Just have a couple of quick follow ups. Hey, how are you? So first on the asset recycling, what are you hearing from the team on the demand for these types of assets in the market and who the potential bidders might be? And then on the flip side of that, you mentioned the multiple as a lever in making acquisition. When do you view yourselves as an advantaged buyer for the higher quality lower cap rate properties?

Yes, the -- first, look, we think there's a pretty active buyer pool. One, there are owner operators. The beauty of some of these assets, and again, they're part of a complex negotiation with Hilton, some of them will be sold encumbered with flags. Some will be encumbered by flag and management. Some will be sold unencumbered by flag or management. So that gives you really a unique buyer pool. Dead markets are still attractive. So there are a number of assets in that sort of 10 to 15 that we've identified that we think will be well received by the buying community. And again, there are several assets that we're looking at selling also with the international footprint, where again there's a fair amount of capital and certainly looking for these types of assets, again with the same premise. Some will be sold with a flag in place. Some will be sold with a flag and/or management in place. So we're cautiously optimistic. We'll begin that journey. And we'll report out as transactions occur over time. So we're certainly cautiously optimistic. As we look on the buy side, look, I think, given our size and scale, we obviously don't have the multiple today. We've got to earn our stripes. But we think, obviously, given the heft that we have today, given the management team that we have, that there's a great opportunity to bolt on larger assets. We're built for really those large, big assets. The team's got experience with it. And we certainly think there's going to be real value created for shareholders over time and huge barriers to entry in trying to replicate and get big convention center or big resorts done. So that's an area that we think that, hopefully, with having a large liquid name and hopefully having the multiple will give us an advantage over time.

Thanks. And then turning back to the cancellations, I think you referenced averaging 30% to 40% in some of the major markets. What's the companywide average? And how much has that grown? And is that coming from a specific type of traveler or industry? Thanks.

I think you've really got to look. It's -- I think New York is probably the best example. And I think it's probably been averaging 30%. And again, the travelers, they're sophisticated because of the pricing, the repricing software. So they're companies. They're individuals. And I think, candidly, we as an industry have -- we made a mistake in not addressing this sooner. I'm glad that Hilton and Marriott have stepped up. And this is the beginning. But I also think that we're going to need to think about a more complex model, again, cancellation, change fees and advanced purchases, flex pricing. And I think all of those things need to be on the table. We can't have a business where people can option out and make five reservations and 6:00 termination, and we're stuck with inventory that we then can't sell. So this is the right first step in that journey. And I applaud Hilton and Marriott for the work that they've done so far on it.

Great. Thanks so much.

Thank you. Our next question is coming from Patrick Scholes of SunTrust Robinson Humphrey. Please go ahead.

Hey, Patrick. Good morning.

Good morning.

Last but not least.

Thank you. Question for you, what is the status on the lease or lease renewals for the Chicago O'Hare hotel?

Yes, just to remind listeners, obviously, that current agreement I believe expires at the end of December 2018. Technically, we do not have a renewal right if the city elects to make it a self-operation, meaning if they select someone, whether it's Hilton, for example, to continue to manage and is not a lease-hold interest, then obviously, that's not an opportunity for Park. I would also remind listeners that it really only accounts for about 2% of our EBITDA. So we continue to monitor the situation to see if there's an opportunity for us. At this time, we do not believe there is. We know that there's been -- an RFP has been released and that that process is continuing. To the extent the city elects to go in a different direction, we stand ready, willing, and able to engage in a dialogue with them.

Okay. Thank you for the color. And then one last question, actually been getting a couple investor questions on this. Noted in your previous earnings call, you had talked about transient pace for business plus 4% in May and plus 8% in June, yet RevPAR came in slightly negative. I imagine that the transient business is your largest customer. How do we reconcile those strong paces with the actual result? And are we talking apples to apples here when we're defining transient pace?

I don't honestly, Patrick, remember the exact context. What I would suggest is let us go back and research that. And then I'll have Ian follow up with you to make sure that we get your questions answered.

Okay.

Now as I think about it, June -- as I think about the second quarter, we were up 0.5% April. May we were down 0.4%. And then we were down June kind of 0.8%. So I think there were some number of factors that affected -- you would've thought June would've been better as the pull through, obviously, from July 4th. But that certainly wasn't the -- was not the case. So we'll research that and get back to you to make sure your question --

Okay. I appreciate it. Thank you. That's all.

Okay.

Thank you. At this time, I'd like to turn the floor back over to management for any additional or closing comments.

Thank, all of you. Hope you have a great summer. And we look forward to our next call in late October.