Greetings, and welcome to Park Hotels & Resorts Third Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to turn the conference over to 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 third quarter 2017 earnings call. Before I begin, I would like to remind everyone that many of our comments made today are considered forward-looking statements under federal security flaws. 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 available on our 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 third quarter operating results and outlook for the remainder of the year as well as update you on situation both Key West and Puerto Rico following the devastating storms which hit the region back in September. Tom will also provide a bit more color on our capital recycling initiative, which kicked off after Labor Day. Sean Dell'Orto, our Chief Financial Officer, will provide further detail on our third quarter financial results and most recent activity as well as provide an update to our annual 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 up the call for questions. With that, I would like to turn the call over to Tom.

Thank you, Ian, and good morning, everyone. The third quarter was certainly a challenging period with the recent natural disasters in Florida, the Caribbean, the Gulf Coast, and Northern California. I want to pass along my thoughts and prayers to all those affected. I also want to commend the hard work and commitment of all first responders and team members, including our partners at Hilton who have worked tirelessly to ensure the safety of our guests and associates, while pushing to get our properties reopened as quickly as possible. In particular, I would like to also express my personal gratitude to the General Managers of both of our Key West and Puerto Rico hotels, John [Indiscernible] and Pablo Torres [ph] as well as their entire teams for their efforts during this very difficult time. Turning to our portfolio of performance. I am pleased with our overall results, considering all the events which impacted our operations during the quarter, including the hurricanes, renovation disruption and the Jewish holiday calendar shift. Overall, comparable RevPAR for our total consolidated portfolio declined just 0.1% on a currency-neutral basis, while comparable hotel adjusted EBITDA margins for the portfolio declined roughly 120 basis points. Excluding these impact items, on a normalized basis, our comparable RevPAR would have increased by 1.1%, while comparable hotel-adjusted EBITDA margins would have declined only seven basis points. Recent hurricanes reduced comparable RevPAR by 10 basis points. Renovation displacement at six of our hotels during the quarter reduced RevPAR by approximately 40 basis points, while the Jewish holiday calendar shift reduced RevPAR by approximately 70 basis points. Overall, group revenues were up 0.1% for the quarter. Our portfolio benefited from strong in the quarter group pickup, particularly at our Hilton Bonnet Creek hotel, with much of that pickup related to guests displaced…

Thanks, Tom, and welcome, everyone. Looking at our results for the third quarter, adjusted EBITDA was $182 million while adjusted FFO was $141 million or $0.66 per share. As Tom noted, portfolio results were largely driven by strong performance of our two San Francisco hotels as well as strength from our Orlando hotels that helped to offset hurricane disruption elsewhere in the portfolio, resulting in a generally flat same-store RevPAR growth in the quarter. The same offset held true on the margin side, which was more profoundly impacted by year-over-year increases in real estate taxes, primarily attributable to our two assets in Chicago, where an aggressive city assessment resulted in a $1.1 million accrual true-up in the quarter for prior periods, as well as the lapping of a $1.7 million credit received at our Chicago Downtown and Atlanta Airport hotels in Q3 of last year. Together, these nonrecurring items contributed roughly 44 basis points of impact to our comparable EBITDA margin decline within the quarter. Very briefly on our balance sheet, there are no major changes to our capital structure during the quarter, with net leverage still running at just 3.8 times. We remain well positioned with a fortress balance sheet with more than $1.3 billion of liquidity available between our revolver and available cash as of quarter end. Other than the $55 million of bonds we expect to pay off by mid-December, we have no significant maturities until 2021. Turning to the dividend. On October 16th, we paid our third quarter cash dividend of $0.43 per share. As it relates to our fourth quarter dividend, we remind investors of our intention to pay out on an annualized basis, 65% to 70% of adjusted FFO, which would translate into a Q4 step-up dividend in the range of $0.51 to $0.58…

Thank you. At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Jeff Donnelly with Wells Fargo. Please proceed with your question.

Hey guys, and thanks for taking the question.

Good morning Jeff. How are you?

Good. I just want to kick-off with the Hilton in New York. You talked a little bit about shifting the mix there. Can you maybe just talk a little bit where -- I mean, you mentioned in your remarks where would you like it, but I guess I'm curious, what's that time frame on how long it would take to shift it? And I guess what should we set our expectations on what it will be like during that process? Is that a fairly linear process in your eyes? Or could it be a little bumpy along the way? And I guess maybe an adjunct to that, have you been much of a beneficiary from that hotel from the closure of the Waldorf?

That's quite a few questions embedded in there, Jeff, but always appreciate your insight. And obviously look, we love the hotel. We think it's in a fortress position, nearly 2,000 rooms, 150,000 square feet of meeting space. We plan to keep it obviously in the Park portfolio and see long-term success there. The decision that we've made at the team at Park is that we believe that both the intermediate and long-term success there is going to be dependent on grouping up. As you know when you look at New York market, nearly 38% increase in supply, plus or minus. We have a competitive advantage there, given the fact that we're one of the few hotels with that kind of capacity. So, having the right kind of group base is terribly important to us. We began the year with a group base probably in the low to mid-20% range. Rob and his team have done an excellent job working with our partners at Hilton. We fully expect that we'll finish the year at around 30%. As I said in the prepared remarks, ultimately, we think we need to be at least 35%. And candidly, it may make sense, given the fact that the market dynamics have changed, to really take it probably closer to 40%. That will allow us again to better yield our transient, and then on top of that, allows us to really grow our food and beverage and our catering revenue as well. So, it will take time. Rest assured we are not pleased with the results so far. We're working our tails off in conjunction with Hilton to improve the situation. Candidly, I think it's going to take a few quarters, Jeff, as we look out. really as you look kind of the long lead sort…

And just maybe just one quick one, there's a quick answer to it. But the top 25 markets in the U.S. are running at occupancy levels that are low 70s, which is probably 300 to 500 basis points above what historical peaks were for hotel industry over many years. Why you think this cycle hotels have been managed more for occupancy than rate, I guess is my conclusion there?

Yes, I think there are certainly a number of variables, Jeff, but I think that one that we can point to as you see the advances in technology that allow people to -- with former cancellation policies. Obviously Hilton and Marriott revised that, which we think will help. But I think that played a role in allowing people to cancel and rebook and really had a pretty negative impact on rate then certainly profitability. Look, I remain bullish and optimistic. When you look at sort of where we are, even as you think about supply. Supply growth has been relatively muted, all things considered when you look back to prior cycles. So, we're not at risk here of what I would call a major shock, unless God forbid some sort of geopolitical. But as you think about it, it really is steady as she goes. I think that we got to continue to press forward. I'm encouraged by improving investment business spending. Remembered it was negative last year, negative 0.6%. We're expecting it to be up, north of 4% this year, another 4% next year. Corporate profits are growing. Consumer confidence is at a 17-year high. So, there's really a nice backdrop. If a tax reform happens, again, they launched I think the initial kind of framework. I think we all know that the sausage now will begin to get made. And that will take some time and probably take many twists and turns. But it does seem like our leaders in Washington, the men and women there are working hard to hopefully get something done. I think that can also be a catalyst, and I think deregulation can certainly help as well. So, it is a little bit frustrating that we're not seeing the pricing power. There probably has been a little more supply in certainly CBD markets. And as we pointed out in our prepared remarks, we're extremely well-positioned. We've got less than exposure than many, if not all of our peers. We think it's about two and a half of our portfolio and really about 60 basis points better than our peer average. So, really like our positioning long term, and I think overall, given what happened vis-à-vis the hurricanes and the devastation throughout the country, really pleased with our performance. To keep in mind, we got Key West opened, and the credit going to the men and women who have worked so hard for 40 days, given both assets, given the amount of devastation there. Puerto Rico will be out of service for some time, as we've noted. But like our positioning and we're encouraged as we move forward.

Thanks guys.

Our next question is from Anthony Powell with Barclays. Please proceed with your question.

Hi, good morning everyone.

Good morning Anthony.

Tom, you talked about your view in 2018. Given the expected improvement in San Francisco, the favorable outlook in Hawaii and some easier comps in some other markets, do you expect your overall RevPAR growth to accelerate in 2018 versus this year?

Well, we certainly are encouraged by what we see again in Hawaii. I'm not sure there's a better asset candidly in our industry when you think about 22 acres and nearly 3,000 rooms and 145,000 square feet of retail space, nearly 100,000 square feet of meeting space, oceanfront, north of 20% EBITDA, still running high margins there in the 36%, 37% range. So love that asset, we expect to have a very strong fourth quarter, as we said, probably high single-digits in RevPAR there. I feel good about the booking pace as we look out. We feel good about the supply constraints in that market. So, we clearly think that's going to be a real positive for us. As we think about San Francisco, obviously we're pulling forward, as you know the renovation for the final phase of the renovation in the fourth quarter. San Francisco is very bullish long-term. We think obviously next year, city-wides will improve about 20%, as I've said during the prepared remarks, to about 735,000 room nights. And again, that's up from low 600,000 this year. And again, as you think to -- look forward to 2019, obviously, we're looking at a record year. I know many of my peers have talked about that as well and probably at about 1.2 million. So, love San Francisco, love Hawaii, those -- when you look at that distribution, that accounts for about 30% to 35% of our EBITDA. That's a fortress sound position as we move forward. So, I still think, even with that strong backdrop, we'll have pockets of continued success and choppiness from certainly other markets. As I mentioned, New York will continue to ramp up as we change the mix there for that hotel. It still looks and feels to me, right now until we really begin to see the benefits of all the initiatives; it's probably a 1% to 2% RevPAR environment. But candidly, we're really early in the budgeting process and that's just anecdotal. So, we really scrubbed the number and do the work as a team and meet with our operating partners. We'll have more to say in our early 2018 and certainly as we prepare for our earnings call in February.

Got it. Thanks. Could you tell me more about Chicago? It's been a difficult market for many of your peers. And I think Sean mentioned property tax increases. A large competitor opened up in the market recently. What's your view of that market and your hotel's positioning within it?

I think a couple of things in Chicago. We had obviously a challenging comp there, given the World Series last year. I won't go back, and Sean gave a very thorough I think assessment of kind of onetime kind of property tax issues there. There were a loss of a couple of city-wides in 2016 that didn't repeat this year. So look, we like Chicago long term. we love our asset there, 1,600 rooms, 250,000 square feet meeting space. we clearly see Chicago being on the circuit of large conventions, and we certainly expect that we'll get more than our fair share. Obviously, there's been new supply with the Marquis being added. Chicago is one of those markets where candidly every few years, you get outsized performance, but otherwise generally, it is steady Eddy. The new supply clearly has to get absorbed, but again, it's a market that we like long-term. I don't know, Rob, if there's anything you'd like that for Chicago?

Certainly. Anthony, just from a profit perspective, even though we had a drop in our business during the quarter, our group catering contribution increased. Team improved food and beverage margin by over 750 basis points. So, we're certainly very excited about what the team is doing and working in partnership with us.

Great. Thanks for the detail.

Our next question is from Bill Crow with Raymond James. Please proceed with your question.

Hey good morning folks.

Good morning Bill.

Tom or Rob, following up on Jeff's question earlier on New York, if you could kind of give us the order of the magnitude of NOI decline in that asset on a 7%-plus RevPAR decline? And then the second part of the New York question, can Hilton fail? And by that, I mean, did they -- with the known closing of the Waldorf, it seems like more business should have been directed your way, and I'm just curious of your take on that.

Yes, let me jump in first and Rob can jump -- can add. Again, we're down, as I said, 7%, 7.8%. Keep in mind we have the renovation disruption, so really down about 6% there. Margins, I believe, were down about 350 basis points. Sean or Rob can sort of give you the EBITDA decline there. I would make this statement. Our partners at Hilton, they are aligned. They are working their tails off with us. We are confident. And I want to reassure listeners and investors in particular, we are confident that we will turn this ship around and that we'll have long-term success there. We have a wonderful asset, a fortress position. The reality is that it's not a transient box to be run as one with a large group base, and that's a real key to success. You saw that in the first quarter when we were up I believe by about 2.9% with 7% growth in group pace there. And you'll see certainly better results, we believe in the fourth quarter obviously with the group pace being up by 0.2%, but that's a real key to success. Could efforts collectively -- could more marketing dollars have been spent on pushing on the groups side? I'm not one to look at the rearview mirror. The Park team owns this situation. We, I think, delivered a solid quarter in the third quarter including New York. We are confident that we will create significant value for shareholders as we move along. We have a plan, and we're executing the plan, and we expect to be held accountable for it.

I appreciate that, Tom. My follow-up is really given the immaterial financial contribution from Puerto Rico and what seems to be significant commitment of capital and management's time to rebuild, is there any consideration of perhaps marketing the asset, taking your returns, proceeds et cetera? Could somebody else rebuild the property?

It's a fair question, Bill, but it's not something we're looking at as a team. We have an iconic hotel, long history within the Hilton family, if you look at the brand. We think really that this opportunity is tragedy. And again, I want to reinforce first and foremost that the first responders, Pablo Torres and his team, our partners at Hilton and many others who just did a phenomenal job. They not only put their own lives at risk here, but they got into Puerto Rico and have remained there. We've got many of our associates there that continue to have their own personal issues to deal with there. So, love the asset, love the potential. We think candidly that this is unfortunately -- the set of circumstances that gives us an opportunity to right size the hotel. There are three kitchens there. Do we really need three kitchens? Can we reconfigure perhaps some of the meeting space? Can we make it more efficient? And as you know, the by-product of a major renovation like this, you effectively get close to a new hotel with insurance proceeds. So, we think the better answer long-term for creating value for shareholders is really to not only continue to own it, but renovate it, improve it. And when we look at a hotel with 748 rooms and that footprint, would we know that we can generate more than 1% EBITDA in portfolio. So, it will take time. It will be a slight distraction, as you noted of management's time. But the team is up to the challenge. And we're confident that we will deliver a much better product that all of the Park team, Hilton and the associates there and the community in the great island of Puerto Rico will be proud of.

Great. Thanks for your time. I appreciate it.

Our next question is from Robin Farley with UBS. Please proceed with your question.

Great. Thanks. I wonder if you could -- I know you're not giving specifics to the RevPAR guidance [Indiscernible]

Robin, I'm having a hard time hearing you, you're--

Sorry, I know you haven't given specific guidance for RevPAR for next year. But if your -- you've been about 100 basis points below the Hilton range. And so if we use that range for you next year. I guess, do you feel like -- what RevPAR level would keep your margin flat next year? Is that something that sits into that kind of 0% to 2% RevPAR range next year?

Yes, it's a couple of things. At this point, Robin, as you can imagine, we're not in a position to really give guidance for next year. I said anecdotally when you look at where Hilton came out at 1% to 3%, clearly we've been south. Hence, the reason I said it looks and feels like a 1% to 2% range. I say that anecdotally without having done the ground-up work of our own portfolio. We are encouraged of what we're seeing in specific markets in San Francisco. I noted obviously Hawaii. I noted the great success that we continue to have in Florida there, some of the ROI initiatives that we have. Also, keep in mind that we have a very active recycling program. Depending on how those proceeds are used, we plan to take whatever we buy upstream, which will also improve the overall metric. So, I would give you that as a backdrop. Look, we're in an environment. And I got to say that we're really proud of the team. When you think about it, we're essentially running at 0.5% RevPAR, and that includes Key West and those two hotels being out of service there for 40 days. Yet, our margins are only down less than 100 basis points, but we're still -- we treat guidance there, but Rob Tanenbaum and the men and women that we have in the management team done an extraordinary job. So, we are confident that we will continue to improve margins. And we picked up about $12 million plus or minus, about 48 basis points so far this year. We set the mark for next year that there's another 75 basis points and probably close to about $21 million. And we're going to work closely with our partners at Hilton to find those opportunities and we're confident that we'll get there.

Okay. Again, I mean, do we think about the 75 basis points as being the net delta year-over-year? Or are you sort of saying 75 basis points offsetting maybe the wage inflation and other things that maybe would result in margins not being on that 75 basis points?

Certainly, Robin, it's going to be a combination. And I don't want to get to the specifics of that. We're working through obviously part of the budgeting process and we'll certainly have more details to provide as we get into 2018.

Okay. Thank you.

Our next question is from Brandt Montour with J.P. Morgan. Please proceed with your question.

Hey Brandt.

Hey good morning everyone. Thanks for taking my questions. So I don't know if I might have missed this, but group pace for 2018, are you in position to kind of give us where you're tracking kind of with and without San Francisco?

Yes I would say that we're at a group pace right now that's flattish. And if you think about this year, we're going to end the year flattish. And then if you take San Francisco, it's probably up 2% in 2017. As we look to next year, obviously we feel very good again about what we're seeing in Hawaii. We feel great about that we're seeing obviously and San Francisco improving. But I'd say right now, the early indications are at that our group pace is tracking flat to low single-digits is where we would be right now.

All right, that's helpful. Thank you. And then on the cancellation front with partners at Hilton, can you just discuss where you're seeing traction from that recent policy change, maybe in the form of cancellation trends as well as fees associated with them?

I was a pretty bighead because along with my peers and really pushing for this. I would say we saw prior to these changes, probably 30%, if you just take New York, of reservations being cancelled in that sort of zero to seven days. And almost all of that had a rate impact. So, I commend Hilton, Marriott, Hyatt and others that have either implemented or considering implementing. We can't have a free option in our inventory. And I think in some markets, 72 hours is appropriate. I expect that over time we will continue to reevaluate. If you want flexibility and an advance, the customers ought to be prepared to pay for that. There are some situations where an advance deposit or advance purchase make sense. The airlines really retrained all of us, and there's no reason that I think hotel lodging industry can't do the same. So far the early indications are encouraging. Again, I don't have enough data that we receive from Hilton regarding that, but anecdotally all of the pieces that is working and it's really not a lot of resistance from customers to forget.

Got it. Thanks guys. Appreciate it.

Our next question is from Rich Hightower with Evercore. Please proceed with your question.

Hey good morning guys.

Good morning Rich. How are you?

I'm doing well. Thanks Tom. A lot of questions answered already, I just got one. So, as you're marketing the 15 assets for sale, I presume that you're also scouting out assets on the buy side with respect to 1031 exchange on the back end there. I mean, could you tell us what you're seeing in the market for acquisitions? How do stack up against your long-term return hurdles, Park's current cost of capital? How do you think all that's about to shake out?

Yes, I'd say, Rich, always a great question. Really, the focus right now is really on the recycling in capital. As you know, you've heard me say this many times, I said think back to our energy spend here in the first year. The internal growth story has been terribly important. Recycling capital, our return on investment projects which are underway, grouping up strategy, which obviously we talked about again. Rob and his team with Hilton figuring out ways to improve margin. So, recycling capital, we were very thoughtful about identifying assets. Again, assets that are capital-intensive that we believe we're going to save north of $100 million in CapEx by certainly closing of those assets. The RevPAR was about $111 versus our portfolio average of $162, so about 32% savings there, obviously, margin drag we had there the drag on resources. Nine of the 15 assets are international in various markets where we do have some resources that are deployed there that we'd certainly like to bring home or reallocate. So, that's really been the focus from that standpoint. As it relates to the U.S. component, as you know, those will likely be a 1031, given the building gain tax that is required for the first five years subsequent to our spin. So, we're really working hard on that. We'll have more to report. At the same time, we're always in the market. [Indiscernible] our very talented team are in frequent contact with brokers, with sellers. given my relationships and others finding deals, I don't think it's going to be an issue for us. Our strategy is to invest in upper-upscale and luxury hotels in top 25 markets and premium resort destinations. We want assets, one, that are going to improve the overall quality of the portfolio, that are going to meet our return hurdles. We're looking for returns of unlevered IRRs in the 10% to 12% range. At the same time, we want them to be accretive to NAV and have as little dilution as possible as it relates to AFFO. We're sensitive to that. We're confident that we can balance those -- all those goals. And we also again want to protect the balance sheet and make sure that we preserve our high dividend payout. So, we're confident. We'll be judged accordingly and don't see any real issues of being able to find attractive deals.

Thanks for that color Tom. Do you think that the timing on this; is there anything you can speak to at this point? I mean would we be having a different conversation 12 months from now as you kind of see the results of this whole process?

I would fully expect us to have this first phase of recycling capital done before the end of next year. And look, we are -- we're active. We're encouraged by the response, but it will take time. We would expect these assets to trade in 2018 and certainly well before the end of 2018.

Great. Thanks Tom.

Our next question is from Lukas Hartwich with Green Street Advisors. Please proceed with your question.

Thanks. Good morning guys.

Hey Lucas, how are you?

Good. How are you? So, my first question is on the Hilton Hawaiian village. I know the RevPAR was up about 2%, but revenue is up almost 10%. So, I'm just curious what kind of drove the upside on the revenue line?

I'll let Rob Tanenbaum. Rob is chopping at the bit. So, he's been working really hard on this asset and again, it is a gem. It's one of a kind in in my humble opinion.

Our revenue growth there actually comes through several categories. One is through the rooms revenue, second is through F&B, and third is through other. From just looking from the rooms and food and beverage side, we were up over $4 million in the quarter. And the team did an amazing job flowing through all that revenue. In fact, our rooms flow-through was 113%, our food and beverage margin was 78%. The other revenue came without quite a bit of due to the Grand Islander, which is Hilton Grand Vacation building. So, we received revenues associated with servicing that building and it's a direct pass-through. So whatever comes up comes down, and we made quite a profit on it. So that's what was driving the initial revenue growth there

Great, that's helpful. And Rob while I got you, can you maybe touch on group production trends?

Sure. Hawaiian Village, we're really thrilled with what we're doing. We combined our sales group with Hilton Village and Hilton Village to sell the U.S. And the group has really very well together. It sustained one another benefits that in and of itself. We have -- if we don't have space in on hotel, we can move it on another property. So, by working together and collaborating, we're really seeing the benefits of Hilton Hawaiian village reflects that strategy.

Great. Thank you.

Our next question is from Sean Kelley with Bank of America. Please proceed with your question.

Hey good morning everyone.

Good morning Shaun.

You guys have covered plenty of ground, so I'm going to try one. Sorry if you're sort of you making you repeat yourself in a different way. But just Tom, really high level, obviously when we came out at the beginning of the year, idea for you guys was that there was some kind of incremental margin you could take, just based on internal operating initiatives. And obviously, couple of curve balls came up in the kind of later part of this year with the hurricanes and whatnot. I guess the big picture question I have it has anything changed at all? Or do think you've got that sort of absolute margin growth? And how much of that has been achieved versus much is still ahead of you?

Yes, it's a fair question, Sean. I would tell you is you kind of step back, I would remind listeners, remember year and a half ago was me and Sean Dell'Orto, me rejoining Hilton and Sean having three jobs for the team was build out here. And we think where we are almost a year as a public company, I could not be prouder of the men and women that we've put together, the way the team is jelling, the interface with our Board, the rhythm that they have with our operating partners at Hilton, and again, having a $9 billion company, plus or minus. I think we're off to an excellent start. Not starry eyed at all, we've got to earn our stripes. We've got to perform. And as you think through really the first year, what are the priorities? Priority number one was really looking at figuring out this internal growth story. We thought there were opportunities on the margin front. I do think that we've made really positive. Rob has built out a very strong team. Candidly, as part of that evaluation working with Hilton, there's been a fair number of turnover both in sales operation as well as GMs. I want to say, were 10 to 12 changes across the portfolio. And again, we've got people accountable there. We've already taken out about $12 million in costs. I think that equates to about 48 basis points. So, had we not done that, that would have been even more margin erosion. So, I think a really solid foundation there. I'm confident of what we've got to do in the next two years as we said, 250 -- 150 to 200 basis points. We're setting a target of 75 basis points next year. It's not easy to do,…

Thanks for the update.

Our next question is from Chris Woronka with Deutsche Bank. Please proceed with your question.

Hey good morning guys.

Morning. Tom, I want to ask you you've been in the industry for a while. We've heard some of your peers, I think talking a little bit more about supply this quarter than maybe last quarter. And the question really is kind of theoretical, but do you think some of these three-star -- these new upscale hotels, obviously some of them are Hilton-branded, some of them are not. Are they kind of creeping in on four-star in some of these urban markets? maybe not San Francisco and Hawaii so much, but kind of New York and everywhere else. What's your opinion on that?

Chris, I don't think there's any doubt that -- they are formidable products. Some cases, they're sort of stealth full-service hotels. They offer a good product and good guest experience. So, no doubt it's a threat. And I think if you take New York as an example, New York if you think back to 2011, we had 141 what I'd would call super-compression day, north of 90%, 95% where those incremental could rooms could really drive rates. That was down to probably 88 days if memory serves me correctly, and probably a 38% decline if you look to 2015, 2016. So, no doubt that's had an impact. I would say in part, one of the real sense is that we believe that the strategic advantages we have the Park portfolio is fact that we got this iconic portfolio. We've got this aircraft carrier, 10 hotels with more than 125,000 square feet of meeting space. We've got our use natural advantage. And I think that's why the grouping up is so important for us to have that base. And as we said, we want to move the top 25 hotels from 31% to 35%. We think to some extent, that helps insulate us and that gives us really the opportunity to build out that incremental transient business. No doubt that if you think back, I'm going to date myself here, but if you look back 10 years or so ago in New York in particular was undersupplied with select service hotels. I would say today it's oversupplied. And I think given the operating model there, I wouldn't be surprised if you saw some of those hotels converting to other uses. I don't know how sustainable it's going to be for everybody, given the amount of supply that's being added there. There is a position. There's is a roll. And there's a -- we think, a competitive advantage long-term for our assets. They're replaceable. We would replicate this asset today, bull's-eye real estate that we were going to reconfigure the operating mix there and again using more group as the base and our confidence that long-term that will deliver for shareholder.

Okay, very good. Thanks Tom.

Ladies and gentlemen, we have reached the end of the question-and-answer session. At this point, I'd like to turn the call back to Mr. Tom Baltimore for closing comments.

Thank all of you for taking time. I wish you all a wonderful fall. Please travel to Park Hotels. And we look forward to talking with you in the New Year of 2018 and beyond. Best wishes.

This concludes today's conference. You may disconnect your lines at this time and we thank you for your participation.