Q3 2019 Earnings Call
At this time all on starting to listen only about please note. This call is being recorded.
I would now like to turn the conference over to Oscar.
Investor Relations director for choice hotels. Please go ahead.
Thank you operator and welcome everyone.
Well, we began we would like to remind you that during this conference.
Can predict the forward looking statements will be used to my.
In understanding the company, it's an adult.
Well results may differ materially.
Indicated in forward looking statement and you can consult the company for okay.
55.
Information about important factors.
Company, but you could consider.
These forward looking statements speak as of today's date, and we undertake no obligation to publicly update to reflect subsequent events or circumstances.
You can find a reconciliation of our non-GAAP financial metrics referred to in our remarks as part of the third quarter 20 lighting earnings press release, which is posted on our website towards hotels dot com under the Investor Relations section.
Morning, Patrick paid to our President and Chief Executive Officer will provide an overview of our third quarter 29 operating result.
Dominic drags it our Chief Financial Officer will then review our third quarter 2019 financial performance and provide an update on expectations for 2019.
Following our remarks, we'll be happy to take your questions with that I'll turn the call.
Thanks, Oscar good morning, everyone and thank you for joining our third quarter 2019 earnings call.
We're pleased to report another quarter <unk> strong financial performance and remain confident that our long term growth strategy is working.
This morning, we announced earnings per share that exceeded the top end up our previous guidance and raised our full year earnings per share and EBITDA guidance, Despite a softer revpar environment.
Tom will share more of our financial results in just about.
I'd like to begin this morning by highlighting our long term strategy to grow in higher value segments and higher value geographic markets.
We continue to strengthen our presence into higher growth and more revenue intense upscale midscale and extended stay segments, where our brands reported a 3.1% increase in domestic unit growth as compared to the third quarter up 2018.
Growth in these segments com, even as we transform comfort our largest brand.
Our other Midscale brands grew 4% in the quarter.
Simultaneously, we continue to expand our presence in the high value upscale segment with 13% domestic rooms growth for the quarter.
We also grew in the extended state segment, where we drove at 10% increase in opened hotels in the third quarter.
We're also awarding a greater share of franchise agreements in more revenue intense markets.
In fact, the anticipated total rooms revenue about hotel in our pipeline today is over 40% higher than that of the average hotel in our system today.
That's more share this morning choices upward momentum in high value geographic markets and segments is paying off for our hotel owners and shareholders alike.
I'll begin with upscale well we are successfully growing the Cambria hotels brand.
In the third quarter, we drove a 20% year over year increase in Cambria screen count by expanding the brand in major business hubs nationwide.
Full year 2019, the brand is expected to break gets record with the opening up a dozen cambria hotels, which together represent nearly 1900 upscale rooms.
Well you today nine of these hotels have already open in high value markets, such as Boston, Houston, Dallas and Milwaukee.
I'm also pleased to share that we expect Cambria well welcome to 50 at hotel do it system just before Thanksgiving.
The brand recently received recognition from three important groups.
First is guests.
Ranked cambria in the highest tier for guest satisfaction among all upscale brands in the JD power 2019, North America Hotel guest satisfaction index.
The second group Cambria is resonating with its corporate travel buyers, who recently rated Cambria a top brand for business travelers in business travel news.
Notably Cambria placed first in seven of the 13 categories. The most of any upscale brand.
In the third quarter Cambria the business travel revenue grew by 17% year over year.
Cambria five placement is notable considering it was the brands first year included in each of these surveys.
The third group showing solid enthusiasm for Cambria hotel developers.
Thanks to the brands robust pipeline of 79 hotels, nearly a third of which are active construction projects.
Yeah, What's also recognized as one of the top hotel brands expanding in North America by top Hotel news.
We now have upscale Cambria hotels open or under development in 34 of the top 50 Revpar markets.
These accolades are welcome recognition of choices ability to grow our share of business travel by capturing more room nights from corporate accounts, while still maintaining our strength in leisure travel.
Not only the Cambria brand rapidly growing it's also performing for owners.
In the core Cambrios same store Revpar grew 2% year over year, which beat its competitive set by 250 basis points.
Yeah. We got same store hotels also grew Revpar index by 100 basis points worse as their local competitors in the third quarter year over year.
Our Upskill Sop ran the offend collection is also seeing success and helping drive our international growth.
Year to date, we have opened nearly 67 hotels and surpassed 300 hotels in the brands global system.
This means a sand remains the industrys largest soft brand by far.
Offend Global development pipeline is now over 100 hotel strong, which means we can expect it to fuel our upscale rooms growth well into the future.
As we expand into upscale our mid scale core remained stronger than ever.
This has led by our flagship comfort brand, which is progressing well that's systemwide transformation.
Only a quarter of the conflict system will be undergoing renovation through the remainder of the year.
I had one third of the domestic compressed system were 530 hotels has already installed new exterior signage with the modern brand identity more than a year ahead of our deadline.
Our owners are eager to signal to gas on the outside of the hotel that's something new on the inside.
Comfort hotels that completed their renovations Bobby ended the second quarter saw revpar growth of 50 basis points and outpaced the upper mid scale chain scale by 60 basis points.
Hotels that completed their renovations also increase their revpar share against competition in their local markets.
With a third quarter conflict, new construction openings are already the highest up any comparable period in the last five years.
During the fourth quarter, we expect to open one new construction comfort hotel per week on average.
Taken together the copper hotels opening this year are expected to generate 10% higher total rooms revenue then the brand average.
Develop or demand for copper also remained strong with a domestic pipeline of nearly 280 hotels, 83% of which is for new construction hotels.
Part of what's driving demand for comfort is our proven value proposition.
More than 65% of the rooms revenue delivered to comfort hotels in the third quarter comes from choice generated channels.
Further copper isn't our only midscale brand seeing success.
This quarter Clarion point celebrated its one year anniversary with the brands debut hotel reporting stellar guest satisfaction ratings.
Year to date, we have awarded 25, Clarion point franchise agreements, bringing the number acquiring point hotels open or waiting conversion to 45 hotels in cities like Louisville, Kentucky, Charleston, South Carolina, and Salt Lake City.
We are pleased with our sleep Inn Midscale brand, which recently opened its 400 domestic hotel.
In the third quarter, the sleep Inn brand grew at system size by 2.6% and saw a 10% pipeline growth, bringing the total sleep in domestic pipeline to 150 hotels.
I'd now like to turn to extend its day, where we continue to drive growth.
In the third quarter, we drove a 10% increase in the number of domestic extended stay hotels, bringing the total number to nearly 400 hotels open across the segment.
We also grew the extended stay development pipeline by 11% to over 250 hotels.
Like Cambria and comfort our new construction would spring brand is another important lever to accelerate choices future revenue growth.
Hi rig counts in occupancy rates, each what spring commands higher revenue than the average choice branded hotel.
We're also seeing strong development demand for both what spring and mainstay suites, whose domestic development pipelines increased by 9% and 18% respectively in the third quarter.
We attribute this robust extended stay development growth the several factors.
Not only our approving brands are tracking developers and guests alike.
The extended say segment is seen as cycle resistant and a smart investment.
Finally, we believe our extended stay growth is proof of hidden demand for long term stay options in both the business and leisure markets.
What spring has fueled our growth in the western United States, which has a dance concentration of high Revpar markets and as a region, where choice brands have significant geographic growth opportunity.
The third quarter of 29 team our total Western hotel pipeline grew by 11% year over year.
This growth was led by California, where our pipeline increased by 23%.
I'd now like to say a few words about how choices powerful business delivery engine is paying off for our franchisees.
Overall, our strong royalty rate growth and development pipeline are signs that choice continues to deliver a strong value proposition to current and future hotel owners.
One important way, we're helping boost their bottom line is by increasing the amount of business delivered to their hotels via our award winning loyalty program.
Choice privileges now has over 43 million members, who drove a 180 basis point increase in our loyalty contribution in the third quarter.
This loyalty growth suggest long term revenue growth for our hotels and for choice for several reasons.
On average choice privileges members book more stays.
And spend more over the year than non members.
In closing we continue to successfully execute on our strategy. This has led to strong third quarter results and positions choice well for the future.
As we look to the remainder of 2019 and beyond we're committed to maintaining a long term view and driving value for our hotel owners and shareholders.
One way will achieve this goal is by growing in key segments and markets as we continue to improve the value proposition for our owners.
I'd now like to turn it over to our CFO , Tom Dragovich, who will share more specifics of our financial results.
Oh.
Thanks, Pat and good morning, everyone.
We're happy to report our third quarter results, which built up the great progress we have made year to date.
Our financial performance continued to be driven by the power of our franchise business model and growth across higher value segment market and brands.
Overall, a combination of solid revenue growth and disciplined cost management resulted in a 7% increase in our adjusted EBITDA.
Strong operational performance, coupled with the implementation of tax strategies that lowered our effective income tax rate, resulting in a 10% increase in our adjusted diluted earnings per share, which exceeded the top end of our guidance by eight cents per share.
Our franchise business model provides multiple levers to drive topline revenue growth.
These include increasing revpar.
Expanding the number and revenue intensity of the hotels in our system.
Improving the pricing of our franchise contracts and continuing to expand our procurement services revenue by providing more value added programs to our platform of over 7000 hotels and other travel partners.
Overall third quarter revenues grew by 10%, excluding marketing and reservation system piece to $153.7 million.
Let me drill down into our for revenue levers beginning with Revpar.
Overall travel demand during the third quarter was softer than industry expectations.
As a result, our domestic system wide revpar results for the third quarter fell below our expectations, but was generally in line with our competitive set declining 70 basis points versus the third quarter of 2018.
Despite the softer revpar environment, we're pleased that the initiatives, we have implemented to improve the guest experience at our hotels and the tools, we provide to our franchisees to maximize their topline revenues are working.
This is especially true for our renovated comfort hotels, which experienced share gains from our competitors.
As Pat mentioned, the positive 50 basis point Revpar growth of our renovated comfort hotels outperformed the upper mid scale segment by 60 basis points.
As guests continue to experience the copper portfolio and at the brands future growth is fueled by a robust new construction pipeline, we're confident that the revpar performance for the comfort brand and choice well continue to shrink than in the long term.
Another long term driver performance is our increasing presence in the higher revpar upscale segment.
Led by the continued expansion of our Cambria brand.
In the third quarter, we grew Cambria same store revpar growth by 2%, which exceeded its competitive set by 250 basis points.
We also increased the number of Cambria rooms by over 20% compared to the third quarter of 2018.
This impressive performance was driven by the opening up five new Cambria hotels in the summer of 2019 alone.
Even more impressive is that we continue to grow the Brad and talk Revpar markets, which will be a catalyst for continued revpar expansion, both for Cambria and choice overall in the long term.
We believe that our investment Cambria, we'll continue to accelerate the brands development increased the revenue intensity of our portfolio and drive strong financial performance.
In extended stay what spring third quarter Revpar performance was strong with a 1.9% year over year increase.
In fact, all three of our extended stay brands, what spring suites mainstay suites and suburban have recorded positive revpar gains year to date.
Our second revenue lever it system size, which benefits not only from the absolute sides of our portfolio, but also the revenue intensity of it it's hotels.
Through the end of the third quarter, we opened 219 hotels in our domestic system, representing over 18000, New Brooks.
This is an average of 84 rooms per property compared to our current system averaged 77 rooms.
We expect that the growth of our portfolio through our focus on the upscale and midscale segments higher revpar locations and our expansion in the extended stay segment with a larger average room count will continue to accelerate our revenue growth at a faster pace than the size of our franchise system.
In the third quarter, the overall number of units and our domestic system increased by 1.8% to reach nearly 5900 hotels.
Furthermore, as Scott mentioned, we reported a 3.1% increase in domestic hotels for upscale midscale and extended stay brands, which are more revenue intense and happened the focus of our investments.
More specifically growth across our key segments was highlighted by our mid scale quality brand, which grew its hotels by over 4%.
Our extended stay what spring brand, which grew its hotels by approximately 8% and our upscale brands, which experienced double digit rooms growth.
Then grew with room count by nearly 10% well Cambria group gets room count by over 20%.
In addition, we continue to successfully execute against our international strategy and are pleased to report that the number of units and rooms open outside of U.S. increased by 4.1% and 4.5% respectively over the same period of the prior year.
Oh.
The growth of our domestic development pipeline is fueled by developers, both existing and new who recognize that their profitability. It's at the core of our operations <unk>.
During the third quarter, we awarded 100, new domestic franchise agreements, increasing our overall domestic pipeline of hotels awaiting conversion under construction or approved for development to 975 hotels at quarter end.
We're pleased that our new construction development pipeline, which represents over three reports of our total pipeline increased 5% year over year to 741 hotels.
The hotels in our pipeline represent over 82000 rooms, or 18% of the current room count of our domestic system.
Cambria, It's a great example of the success, we're seeing with new construction.
You heard about our year to date progress opening Cambria hotels were seeing even greater success and starting new projects.
Since the beginning of 2019, we've broken ground on eight different properties and now have 25 active new construction Cambria projects.
Another development success story is our drive to open new construction comfort properties in parallel to our efforts to refresh existing hotels.
As Pat mentioned, our new construction properties are also more revenue into.
This is largely driven by hotels and higher revpar locations as well, it's improved franchise agreement terms.
Comfort in Cambria are leading the way it our high quality system expansion.
We're pleased with the quality of our overall unit growth and the impact the composition of our pipeline can have on future revenue.
As such were maintaining our net domestic unit growth guidance of approximately 2% for full year 20 like team.
Our third lever the price of our franchise agreements continues to be a significant driver of our revenue growth.
In fact, our royalty rate grew by 12 basis points in the quarter and has increased 11 basis points year to date.
Our ability to increase the effective royalty rate, while simultaneously increasing demand to enter the choice system is proof of our focus on maximizing franchisee profitability.
We remain confident in our value proposition and believed that we can simultaneously continued to increase both the size of our franchise system and pricing of our franchise agreements for the foreseeable future.
Based on her performance year to date, we've raised the lower end of our effective royalty rate guidance by one basis point and now anticipate it to increase between nine and 12 basis points for full year 2019.
Our fourth key revenue driver is our ability to continue to provide value added products and services to our platform of over 7000 hotels and other travel partners.
In the third quarter, our procurement services revenues increased 27% to $14.8 million compared to the same period of the prior year.
Furthermore, we're optimistic that we can continue to drive outsized procurement services revenue growth over the next several years.
In closing I'd like to comment on our commitment to making long term investments in the business and return excess cash flow to drive shareholder returns.
Our earnings outlook for the remainder of the year.
Year to date, we retired $81 million back to our shareholders. These returns came in the form of $36 million in cash dividends and $45 billion and share repurchases.
Additionally, our board of Directors recently approved an increase in our share repurchase authorization by approximately 2.3 million shares, bringing the total program to 4 million shares authorized as of September Thirtyth of 20 like team.
Our strong cash flows and debt capacity position us well to continue to grow the business and return excess cash flow to shareholders well into the future.
Finally, I will spend a minute on our earnings outlook for the remainder of the year.
As a reminder, our guidance now includes the owned hotel operations, we discussed with you last quarter.
Our outlook assumes our fourth quarter domestic revpar to range between a decline of 2% and flat and full year domestic revpar to range between a decline of 1% and flat.
For the fourth quarter 2019.
We expect adjusted diluted earnings per share to range between 82 cents per share and 86 cents per share.
We expect our full year diluted adjusted earnings per share to now range between $4.21 and $4 in 27 cents, representing an increase of five cents at the midpoint versus our previous guidance.
Lastly, we now expect our full year 2019, adjusted EBITDA to range between $362 million and $365 million, representing an increase of $3 million at the midpoint versus our previous guidance.
So this isn't a strong position and we remain optimistic that this performance will continue as we drive results through our long term focus at this time patent I would be happy to answer any questions operator.
Thank you, we'll now begin the question and answer session to ask a question you had press Star then one on your touched downtown.
You are using a speakerphone please pick up your handset before pressing the keys to the Jive. Your question. Please press Star then to.
The first question stay comes from Thomas Allen with Morgan Stanley . Please go ahead.
Hi, good morning, good results in a tough market.
Sure just talking about the market overall its felt like this quarter the economy through our through upscale chain scales. What's your focus on really underperformed luxury and upper upscale much more that has in prior quarters, what's going on there do you think.
As long as I think that's a segment that depends a lot on corporate travel, which I think a as you look across the industry that has softened somewhat.
You know, where we're focusing cambria is really in the upscale segment not necessarily upper upscale.
But I think it's it's a softening in in that corporate travel.
Environment, what's impressive for lots are hopeful is what we're seeing on our cambria themselves our ability to win more corporate account business, which has not been sort of where where we've been focused in the past where you know historically, we've been two thirds leisure one third business, but when you look at the corporate accounts where cap.
Turning in both Cambria and some of our other brands, we feel really positive. So while it is softening we're taking share at at a time when that when things are not not growing which is actually a strong indicator for us about the brand strength.
And I think Oh.
Oh, sorry, Tom it's what I think one of the threat.
Very fraud.
No I was just to clarify I was saying just economy through upscale start wasn't calling out upscale specifically I was just saying it seems like the lower to mid tier underperforming the higher tier right now in the market is either.
That's what the day, that's kind of in buying so yeah. Yeah, I think yeah, I think you're seeing a broader trend of light on both the leisure side and on corporate.
So you know the industry itself is softening somewhat I mean, when we look into our system in particular, the softness area geographically is the sort of the oil and gas markets I'm think Texas, Oklahoma, Louisiana, you know that segment in of itself really we would have been flow.
Yeah.
From a revpar perspective, if you if you back out what's going on in those seen those oil and gas markets. So there is some softening in that part of the countries I think is adding too.
That is a day I'm a driver rather have the softening.
[noise] helpful. And then just for my follow up you guys made a statement that you expect procurement revenues to continue to drive outsize growth over next several years curious.
Remind us what's really driving them and what what's driving your your optimism there that you.
Yeah, I think it's a number of things one is the growth in the number of rooms, obviously across our system.
What's in there are when our hotels by everything from you know cheats syntels to soaps those types of things. The other thing that we've added for our owners is access to things like cyber insurance and some other things that really discounted rates.
So there's a lot of things that weekend.
Through the the scale purchasing that we as an organization can bring to our individual hotel owners, that's very attractive. So that's that's added to it as well. So it's both the system size growth and then also new programmatic things that are owners are asking for that we're able to bring to them at a discounted rate.
Great helpful. Thank you.
Yes.
The next question comes from Shaun Kelley with Bank of America. Please go ahead.
Hey, Good morning, guys. This is actually add Danny on for Sean.
Then if my.
Good morning. My first question is on your as you know so.
It did come in a little bit lighter than what we were modeling for and we're looking for in the third quarter and if you look at it kind of year to date, it's running sub 3% year on year. So if we like X out all the onetime stuff, but what is.
Like sustainable trajectory going forward.
Yes, that's what we've seen so far that normal or.
Absolutely. So so historically, we've grown our S.J. right around call it 4% to 5% mid single digits or so at the beginning of the year, we talked about guiding to a much higher s. unit growth as a result of some of the investments that we're making in the business. What we found as we were able to do a lot of those investments at a lower cost obviously, there's some timing implications as well so we expect a slight tick up in Q.
Before in terms of our S United spend but when we take a look at the full year, we're still looking at probably about a 4% growth year over year for the full year.
We do anticipate that being our normal run rate as we progress into the future as well.
Yeah. That's really helpful. Then just for my follow up.
How then it anymore on the royalty rate side.
Maybe at a high level are you guys able to maybe think about walk us through maybe like any of the big pluses and minuses look into next year.
Just the moving pieces between our moving further up the chain scales, how new construction would impact and then to the extent you're able to give any color.
Whether there's a meaningful difference between.
Domestic royalty rates and international since its.
International is actually Theres, some traction there too.
Yeah, I think just to answer your second question first for the international relative to what we do domestically it's about half.
Yeah. So it's in the force domestically and in the twos internationally a lot of that is really a result of two things one master franchise agreements and then also in a lot of the countries, where we do do direct franchising.
The franchise model there is not as robust if you will from a business delivery perspective. So it is a lower effective royalty rate marketplace as far as what will drive it in the future. Yeah, I think what you've got to look at two things. One is the amount of new construction, where where we are doing where we're not discount.
The effective royalty rate if you look at brands like Cambria and comfort would spring a lot of our new construction brands. Those are the value proposition that owners are looking for they're willing to pay full rates for that so we're not not having to discount to to drive.
Unit growth on that front.
And I do think some of the discounting that that had to be done way back during the downturn.
As those hotels ramp to full rates, you're seeing the burn off of those this discounting that that had to be done you know back six seven years ago.
Yeah, we've run an analysis internally if you think about just the long term potential for that effective royalty rate line item, we basically say that there's probably about 70 basis points are so over the course of long term every one of our contract was actually issued at rack rate and so we still do see when you take a look at our historical averages of call. It mid.
Single digit we see that being sustainable over the course of the next several years.
That's super helpful. Thank you so much.
Thank you.
The next question comes from David Katz with Jefferies. Please go ahead.
Hi, good morning, everyone.
Nice quarter I just wanted to go back to one thing that I wasn't quite sure about from the comments versus the text around Cambrios Revpar I know, it's it's still relatively small was it plus two or was it.
Well, we we were seeing my minus two we thought.
No no same store basis, it's plus too.
Which when we look at the segment. It competes in its 250 basis points. If there were segment came in.
So that wouldn't because we've got hotel that a ramp and we wanted to look at same store.
Today, an apples to apples, it's a math equation, David with how successfully been in terms of opening new properties and those properties of open towards the tail end of last year as well all of those hotels are in ramps or the revpar stats that we issue or on the portfolio basis versus the same store basis.
Right and just more broadly speaking, you're obviously, you know getting some solid momentum here, but.
Given the landscape out there where you know from our perspective, we see public companies, putting up pretty strong unit growth across the board.
You know we always ask ourselves. The question are trained to ask ourselves. The question, Ken everyone when here or or someone has to lose.
[laughter], how should we think about you know that matter kinda, everyone continue to add unit growth at the rate that they have.
Yeah, It's interesting David I I've got a couple of slides I look at that came out of the hotel data conference a couple of months ago. It just talk about the 30 year trajectory of consumed room nights per capita.
Across the U.S. and that number continues to accelerate.
So if you look at the long term trends.
Population growth you look at the retiring baby boomers, who are living longer have more discretionary spend our spending it on travel.
The long term trends are for greater demand.
And so we when we look at that environment.
There is an opportunity for for a lot of companies to participate in this segment.
In this industry I think for us in particular, the unit growth that we're looking at end of the wouldn't be strategic segments that were focused on are really those higher demand segments. You know the upscale limited service segment is where developers want to build and consumers be they boomers Gen xers or millennials want to stay.
So when we look at those demand and supply trends those are positive trends for not just our brands, but for others in the industry. So we feel pretty confident about our ability to to take share, but also as the the pie itself is getting bigger across to be successful in those segments.
Got it thank you very much again nice quarter.
Thank you thanks.
The next question comes from Robin Farley TBS. Please go ahead.
Great first I wanted to ask on your unit growth, which is unchanged for the year kind of implies that the fourth quarter would be.
The biggest increase sequentially unit growth and just wondering if there's any risk to that given some other companies have talked about.
Construction delays because the labor shortages, just how comfortable you are that Q4 will sort of get you to the full year number.
So when you take a look at Q4, it's obviously our strongest quarter in terms of new openings. When we take a look at the pipeline both in terms of conversions as well as new constructions, we're confident not approximately 2% guidance now a five or 10, a hotel push into January could shift that 10 basis points either way.
And so from that perspective, we expect to be pretty close to that and you know 2% unit growth number the only other thing I would add is if you take a look at our rooms growth in particular, we expect our rooms growth actually outpaced our unit growth. This year and this goes back to the prepared comments were growing and higher revenue segments larger room count, especially on the extended stay side of the house and.
So we do anticipate from a rooms perspective, probably coming in slightly above that 2%, but units. We are best guess right now is approximately that 2% range.
Okay, Great. That's helpful. Thanks, and then just wondering if there any other.
Ownership situations like the the JV that you bought in.
The four units when you look out in your.
You are taking measures to grow the brands are there other sort of temporary ownership situations like that that you're considering.
So that a joint venture was actually our largest from the standpoint of open opened hotels and assets.
We don't have anything similar to that.
We from a development perspective have call. It a handful of joint ventures, we also put.
Obviously key money out and are doing some some lending.
So from the standpoint of using multiple vehicles to grow the brand we're going to continue that that that strategy, but we don't have anything from a joint venture partner that is a similar sized yeah Robin and if you take a look because I've gotten a couple of questions. On this I think it's important to share. It when you take a look at that $555 million that's out there.
That's not all key money in recyclable called call a couple of hundred million or so that's really those owned assets that we talked about couple of hundred million or in the form of JV in loans, and then everything else about $75 million those key money because it is a question. We've got in terms of that the composition of that 555 million that's tied towards Cambria.
And then just last thing on that point.
I think if you do what you described where you're willing to commit up to 725 million. So there's a little bit under 200 million left to go is there a timeframe we should think about.
That being put to work by is that sort of like in the next 12 months, you'll have that full amount put to work or is it a longer term.
I think on the current pace, where you're probably looking at another two years.
Is where we would expect to reach that ceiling, but keep in mind. There is the opportunity to recycle and so you know that it's a while while there is a ceiling. There. This is not a a buy and hold strategy. This is a recycle.
The other capital in order to continue to grow the brand in the strategic markets that we're focused on it so year to date Robin if you take a look at what we've put out in terms of capital and what we recycle backend we've made about $90 million worth the investments, we've actually recouped 45 million from previous investments. So it's showing that that recycling those recycling efforts already actually.
Paying dividends asset light hotel open and we're monetizing stricter a franchise fee.
Okay, great. Thanks very much.
Thank you.
The next question comes from out and it's Tom with Longbow Research. Please go ahead great. Thanks, taking my question you know so two questions first off a as you mentioned you know if it were not for oil and gas you report would've been flat in the quarter could remind us kind of ballpark what percentage of your properties are well I guess Marcus secondly.
You know kind of your point about you know I'd break out Miss a you know.
You know as you know leisure versus a you know I corporate travel.
Got booked out you know because if we are five you're done or what would be your ideal mix between those two versus where it is now.
Yeah, I'll, just about 7.5% of our inventories sitting in the oil and gas markets.
And on the business leisure travel, we're really looking at it more from a you know from a segment perspective.
So as as to the upscale brands, both Cambria and ascend grow I would expect that to be two thirds business. One third leisure our comfort brand, we're really targeted to be more of a 50 50.
You know so when you think about those the heaviness. So those are those three brands in particular that'll skew our segments in those up and those are in those particular brands more towards business travel. That's those are sort of our internal targets on on what we're looking at from a brand perspective.
Great. Thank you.
Thank you.
Next question comes from Jared showed yen with Wolfe Research. Please go ahead.
Hi, Good morning, everyone. Thanks for taking my question so.
Last year at this time you gave some color on the forward year in terms of net unit growth Revpar is royalty rate you touched on the royalty rate earlier in the queue in a that anything you can share on early thoughts on 2020 for net units in Revpar and I guess are the trends that you're seeing for this year is that kind of a fair extrapolation into next year in terms of low single digit net unit growth.
Flattish to down Revpar is that kind of how you're thinking about next year.
Yeah, I think there's a couple of factors that I mean, obviously the industry itself is on trend to continue to soften, but when I look at our brands in our performance. There's a couple of positives for US. The first is the comfort renovations.
Really moving as we talked about on the script from a headwind to a tailwind we expect that to continue to accelerate into 2020, and then just across our system. We've been closing the gap against our segments. So from the standpoint of catching up to fair share of our segments that gap as close to each quarter and we expect that trend to continue.
That's being really driven by a greater share of business travel as I mentioned.
And then there's also the revenue potential of hotels that were opening in those higher revpar markets. So I do think there's opportunity for us to exceed.
Or at a minimum meet where the where the industry is headed as as we move in on on one on Revpar.
Okay. Thank you and then Pat I I think you gave some stats in the prepared remarks on the copper animation, which I may have missed but can you just give us.
An update on where you stand in that transformation what percent of the hotels still need to be renovated what's the timeline for those renovations and then you just mentioned that you expect to flip from a headwind to a tailwind on the Revpar side what quarter is that next year. If you had to pinpoint it where you think you start to outperform the industry on Revpar.
Yeah shared that hack that occurred in Q3, so that that occurred this quarter, which was our expectation at the beginning of the with the first two quarters would be a headwind and it would flip to a tailwind in India and the second half of the year. So Q3 demonstrated that.
Those hotels you that finished the renovation in the second quarter had a 60 basis point increase in Revpar.
Above the industry. So we feel really good about that you're so the other question, but how many are left to do is really about 25%.
That remain to be done in the fourth quarter.
If you remember the type of business, we run a lot of seasonality here, so owners weighted to get through the summer.
They don't want to renovate during the summer, which is their peak season. So.
Our some too.
Scheduled the renovations began in late third quarter and into the fourth quarter.
So we do expect those folks to get the bulk of that work done this year.
And what we're seeing is the longer the renovations in place that once the sign goes on and then the AD campaign that we as we kicked off this summer to really introduce the brand to the customer all of those are having a positive impact both on overall revpar, but more importantly at the local Revpar index.
Level as where as well so the hotel owners are really seeing the benefit of the investment and we as a brand or are accelerating that through our additional advertising.
Okay. Thank you said you just to clarify that on on that comment like I know the hotels under renovation I think you called out the.
50 basis points Revpar growth outperformed the industry by 60, Bips, but your entire portfolio overall, the minus 0.7% Revpar contraction in the third quarter are you, saying that that number outperformed the industry that you gain Revpar index share in the third quarter.
I think what kind of thing was for comfort specifically there were Revpar index share gains for the entire portfolio were for all intents and purposes, we track pretty closely the industry in terms of the comps that in terms of those segments in which we compete and it's called and call. It 10 basis point.
GAAP against industry I think more importantly, when you take a look at that comfort renovations.
And the progress that we've made for the overall portfolio for all intents and purposes that was a net neutral in Q3, you were seeing a tailwind for the comfort brand as we head into next year, we expect that to the tailwind to accelerate and for it to become even broader tailwind for the overall portfolio.
Okay. Thank you very much.
Yeah. It's it's it's about 45% of our revenue is that's the that brand, which is why it has such an outsize impact.
Got it thank you.
Next question comes from Joe Grass with JP Morgan. Please go ahead.
Hey, guys. Good morning armor and are on for Joe. Thanks for taking my question.
Your next morning, just one.
One question on the pipeline domestic pipeline of hotels grew on a year over year basis, but can you give color of the growth on a rooms basis, both on our year over year on a sequential basis. Please.
So I think when you take a look I I don't have the data point right off hand, but when you take a look at the overall portfolio Cambria when you take a look at what spring.
It looks like it's around 10% or so higher than than our historical averages in terms of room growth right now where it seventies, our average room size in terms of those.
Units that are in the pipeline, it's about 77 versus 67 to seven additional rooms. So I think that you could probably take about a 10% premium, but we can get back to on the exact at a point.
Awesome. Thank you.
Thank you.
The next question comes from Michael Dallas area with Baird. Please go ahead.
Good morning, everyone.
Morning, just with Revpar growth down this year on year chain scales are you hearing anything differently today from franchisees that that might slow the pace of new signings going forward or change the way, they're thinking about new investments.
Yeah, I think it's really two stories Michael on the new construction side. Those are owners, who are looking at if you sign an agreement today, you're going to be opening your hotel three years from now.
So these are these are long term investors and most of our.
Sales that we deal or two existing owners about two thirds of a new franchise agreements, we sell our two existing owners. So.
These are long term holders and there are many of our multi unit holders as well I think on the conversion side of the house.
That's where you get a little bit more of I would call at Lumpiness, If I look at this year.
Our development has been a little bit more.
We've had spikes if you will we had a record month in June .
But I think you you have to really kind of look at where the the those individual owners are looking for.
A value proposition and I do think gives us the environment softens, you're going to see more independent hotels, and you're going to see owners a weaker brands want to join our system. That's historically, what's happened in as as the environment softened somewhat so those the conversion brands of ours generally pickup share during during type.
As a softening.
Got it that's helpful and then just when.
Keeping question aside from the oil and gas market weakness that you referenced do you guys have any meaningful impact from the hurricane in September that affected your revpar growth.
It was it was minimal the timing of it wasn't good because it did hit during the labor day weekend. So there may have been some demand that that was out there that didn't show up but it was a oh. It was it was really hard to measure any meaningful impact I'm here in the domestic United States.
Okay. Thank you that's all from him.
This concludes our question and answer session I would now like to Kinda conference back over to Patrick basis for any closing remarks.
Thank you operator, thanks, everyone for your time. This morning, we wish you have a great holiday season, and we will talk to you again in the new year have a great day.
This conference has now concluded. Thank you for attending today's presentation you may now disconnect.