Q4 2019 Earnings Call
Ladies and gentlemen. Thank you for standing by.
Open up a Choice Hotels International fourth-quarter and full-year 2019 earnings conference call this time all lines are in listen-only mode conferences being recorded. I don't know how like to turn the conference over to Ally Summers investor relations director for Choice Hotels.
Thank you operator and welcome again, everyone. It's an honor to John you for the first time as investor relations director. I look forward to meeting and working with all of you before we begin we would like to remind you that during this conference call certain predictive are forward-looking statements will be used to view and understanding the company and its results actual results May differ materially from those indicated and forward-looking statements, You should go solid the company's form 10-K and other SEC filings for information about important risk factors affecting the company that you should consider them.
He's full of looking state.
Speak as of today's date and we undertake no obligation to publicly update them to reflect subsequent events or circumstances.
You can find a Reconciliation of our non-gaap financial measures refered to in our remarks as far as of the fourth quarter and full-year 2018 earnings per month, which is supposed it on our website at choicehotels.com under the investor relations section this morning our president and chief executive officer will provide an overview of our 2019 operating results down dragovich. Our Chief Financial Officer was in review our fourth-quarter and full-year 2018 financial performance and provide an update on expectations for 2020 following the remarks. We'll be glad to take your questions and thoughts that I'll turn the call over to parts.
Good morning.
One and thanks for joining our fourth quarter and full-year 2019 earnings call. I'd like to welcome Ally to the team and I know that she will be a great resource for all of you guys replace report positive results with a fourth-quarter and 2019 as a whole this morning. We announced strong financial performance reflecting the following results for full year 2019 as compared to the prior full year. We grew adjusted earnings-per-share by 11% exceeding the top end of our previous guidance by $0.05 per share.
And we grew adjusted ebitda 7% and met the top end of our previous full-year guidance.
2019 was a year of investment investment in brands for the customer of Tomorrow Investments that are improving the value proposition for our franchise owner of an investment in our platform that continues to provide our guests with new travel options in our franchise owners with new Services they value
20 will also be an investment year as we continue our strategy of positioning the company to grow in more Revenue intense segments and locations dead.
Be more specific. We are strengthening our existing Brands and building new ones to appeal to the customer of tomorrow in the upscale mid-scale and extended stay in a segments.
We have also been intentional about the geographic markets. We are targeting to grow Our Brands across these three key Cycles.
Stated plainly. Our focus is on the revenue intensity of each Hotel those currently in our system. And for the new hotels. We are attracting in the upsurge mid-scale an Extended Stay segment both domestically and internationally, and we've had great success executing this strategy last year off for full-year 2019 versus the prior full year. We drove substantial growth across the higher value and more Revenue intense upscale mid-scale and Extended Stay segment song with a 3.1% increase in units and we expect this growth rate to increase in 2020.
Polio is improving and our pipeline is welcoming a higher percentage of new construction hotels.
New construction hotels are typically more Revenue in tents and more likely to pay off for the company in the long term.
The anticipated growth room revenue of a hotel in our pipeline is higher than that of the average hotel in our system today. And as a result, we expect these new hotels will generate nearly 15% higher revenues to Choice throughout the life of the franchise agreements.
These metrics are proof that we are having success strategically growing the right brands in the right segments in the right markets.
And as well share this morning Choice Hotels franchisees and shareholders are benefiting.
I'll now provide a brief update on each segment and say a few words about how we're investing in our value proposition and expanding the value-added programs. We provide to our platform of over 7,000 hotels and other travel Partners before handing it off to Dom.
In the upscale segments are Cambria and a saint Brands each experienced impressive growth last year in 2019. We increase the company's domestic upscale room count pack cost these two Brands by 44% year-over-year and now have over 29,000 rooms in our domestic upscale portfolio.
This growth was highlighted by the ongoing momentum in our Cambria brand which grew its domestic room 28% year-over-year and reached a milestone of 58 open hotels with a pipeline of 89 hotels 27 of which are already under construction as of your end.
And the Ascend Hotel Collection which grew its domestic room count over 50% including over 6,500 associated with our strategic partner with am Resorts and apple Leisure group brand known for its portfolio of luxury all-inclusive resorts.
Our upscale rooms growth was complemented by our ability to drive a 27% year-over-year increase in new upscale franchise agreements last year off once open. These upscale properties will further fuel the revenue intensity of our system.
Last year the Cambria brand open 11:00 new hotels representing over 1700 upscale rooms in major markets like Boston Houston and Phoenix and wage of the Year by opening the doors of our 50th Cambria Hotel the brand largest property in a high rep Farm Market just outside Disneyland in Anaheim, California.
2020 is shaping up to be another great year for Cambria as we expect to exceed the brands openings record for a second consecutive year with thirteen anticipated openings across the country.
This year we expect to begin construction on 17 New Cambria hotels which will join the 27th projects currently under active construction and the additional sixty two hotels in pre-construction setting the stage for continued growth of the brand for many years to come.
Yes and Hotel Collection choices upscale software and also had a record year in 2019 for the second straight year. We broke development records for a send-off 3% year-over-year increase in the number of domestic franchise agreements awarded.
With over 300 hotels in its global system. The Ascend Hotel Collection is the industry's largest software and by far in fact, it's larger than the next two soft Branchburg combined.
Our mid-scale segment continues to be a critical component of our strategy to drive the revenue intensity of our portfolio the transformation of our upper midscale Comfort brand points to the continued commitment of choice and our franchisees to maintain the leadership position of our Flagship brand.
And our strategy is working performance is improving our efforts to refresh existing Comfort hotels through the multi-year 2.5 billion dollar transfer money is driving share gaining Comfort hotels that completed their Renovations continue to experience rev part index games versus local competitors for the past three consecutive quarters.
and develop
Our interest is growing last year. We opened an average of more than one domestic Comfort Hotel per week. The highest number of openings for the brand in eight years the appeal for the comfort brand and the development Community continues to grow with a 20% increase in domestic franchise agreements awarded in 2019 versus the prior-year and over 40 hotels under active construction at the year-end. In fact, we have nearly doubled the Comfort pipeline to almost 300 hotels since the birth.
I mentioned earlier that our focus is on Revenue intensity.
Domestic Comfort franchise agreements awarded for full-year 2019 are expected to generate over twenty-five percent higher revenues over the life of their contracts as compared to domestic Comfort franchise agreement awarded in the prior-year.
we
Comfort to return to net unit growth this year and accelerate in 2021 and Beyond
our attention has now turned to the next chapter in Comforts transformation next month. We expect to unveil the new Comfort prototype to help the brand maintain its position as a leader named upper midscale segment.
The Prototype maintains Comfort low cost to build advantage over its competition and delivers flexible design options that meet guests and owner preferences wage type is already received enthusiastic reviews from existing comfort franchisees and developers who are eager to invest in the future of our Flagship brand.
Part of what's driving demand for comfort is our proven value proposition which Builds on our existing commitment to invest in our franchisees success.
More than 70% of the rooms Revenue delivered a comfort hotels in the fourth quarter came from Choice generated channels.
Typically new to our mid-scale portfolio is Clarion point which is experiencing great success as an extension of our popular Clarion brand, we awarded more than 30 domestic franchise a game last year and expect to open two. Dozen Clarion Point hotels this year the total number of Clarion hotels open or waiting conversion since the brake launched has now surpassed 50 hotels and the Clarion Point brand is resonating with guests. Our first Clarion Hotel has a guest satisfaction score of 9.3 out of 10.
Shifting now to Extended Stay one of the fastest-growing segments of the hotel industry. We kicked off 20 20 by launching ever home suites a new construction wage. Scale Extended Stay brand.
Ever home sweet is the first brand to enter the midscale Extended Stay segment in nearly a decade where a significant portion of the inventory is 15 years or older and where the bank tell us that demand far exceeds supply for hotel stays of 7 + nights.
Liberated the brand launched by breaking ground on the first hotel expected to display the ever home suites brand and multiple developers have already committed to build 13 ever home suites hotels in the Austin, Texas and Los Angeles markets. We expect to open the first-ever home suites hotel next year.
We unveiled ever home sweet just as the company surpassed 400 open extended stay hotels across our woodspring Mainstay and Suburban brands.
A major driver of our Extended Stay growth is woodspring Suites which continues to improve in both performance and growth in 2019. We incorrect account for the brand by 8.4% We also awarded 66 additional domestic woodspring franchise agreements last year.
Are closed with a few words about how we're committed to our enhancing our value proposition by maximizing our franchisees return-on-investment and expanding our platform business.
last year
Can we drove a 150 basis point increase in our loyalty contribution an increase both the share of Revenue and the total number of states coming from our existing loyalty member?
Our strong loyalty contribution follows several major enhancements to our choice privileges offerings.
This fall we rolled out new benefits for elite members as well as special rewards for business Travelers at our Cambria hotels. This helped increase the brand loyalty contribution by nearly four hundred basis points year-over-year in 2019.
And just this month we went live with our newest offering golf by choice the program the first-of-its-kind in the hospitality industry gives members exclusive access to Deals page top rated Golf Apparel and Equipment while allowing members to earn and use points when booking tee times and golf courses across the country.
We're also pleased to offer our more than forty four million Choice Privileges members the opportunity to earn and redeem points at all inclusive locations in Mexico, the Caribbean and Central America by booking their state directly on choicehotels.com. This latest part for Choice Privileges members is the result of our strategic agreement with am Resorts which positions Choice as having the largest all inclusive luxury resort offering of any major US Hotel company and closing three point spread. We're delivering on our franchisee value proposition.
First owners are willing to pay more for Our Brands when renewing their agreements to remain in our system or when joining as a new owner specifically 2019 was a record year for relicensing and renewal revenue, and we continued to improve the effective royalty rates of new franchise agreements awarded. This gives us optimism that owned not continue to see increased value in our brands.
second
Nearly six out of ten franchise agreements awarded last year were with existing or returning owners.
And finally, we maintain a ninety-eight percent voluntary franchisee retention rate of which we are extremely proud as we look ahead to 2028 remain committed to investing in the business to grow the right brands in the right segments in the right markets. This will fuel choices long-term growth and continue to pay off for our faith and shareholders alike.
And I'd like to turn it over to our CFO Dom dragovich who will share more specifics of our financial results.
Thanks, Pat. Good morning everyone. We are very pleased to close out another year of strong financial performance on a high note.
The resiliency of our business model continues to position us. Well financially and allows us to continually invest in the business for the long-term grow earnings and return Capital to share home.
We have accomplished in 2019 in our investment plan in 2020 is not just for the next twelve months, but rather the next decade and Beyond.
For full year 2019 a combination of solid Revenue growth disciplined cost management and revenue focused Investments resulted in a 7% increase in our faith year adjusted ebitda, achieving the top end of our previous full-year guidance.
Thanks to our strong operational performance combined with the implementation of Tax Strategies to reduce are effective income tax rate. We exceeded the top end of our full year 2019 wage adjusted earnings-per-share guidance by $0.05 per share representing an eleven percent increase over the prior full year. To $4.32.
total revenues for a full year 2019 reach 1.1 billion dollars in grew by 7% over the prior-year
Let's now take a closer. Look at our fourth-quarter results.
For the fourth quarter 2019 as compared to the same period of 2018 total revenues excluding marketing and reservation system fees grew by 10% off 130.2 million dollars and adjusted ebitda increased 6% to eighty 1 million dollars.
Fourth quarter 2019 adjusted earnings per share were 92 cents a 5% increase over the prior-year quarter and exceeded the top end of our previous guidance by 6.5 per share.
Our financial performance continues to be driven by the resilience of our franchise business model and growth across higher value segments geographies and Brands off these results are proof that our long-term strategy is paying off and positions as well for future growth.
I've business model which places are owners profitability at the center provides multiple ways to drive top-line Revenue growth as a reminder. The key levers are increasing rev expanding the number and revenue intensity of the hotels in our system improving the effect of royalty rate.
And continuing to expand our procurement Services Revenue by providing more value-added solutions to our platform of over 7,000 hotels and other travel partners.
Let me dive into our for Revenue levers beginning with rep par.
This year we along with our competitive set experience soccer overall results compared to Industry expectations for the key segments where we operate our domestic system a red car declined 90 basis points for the full year, which was in line with our guidance our fourth quarter 2019. Domestic system-wide revpar results were at the low end of guidance decline about 2.1% compared to the same period of the prior year. We attribute the fourth quarter performance primarily to the regional performance in oil and gas markets which hath been impacted by oil price and production challenges the geographic mix of our current portfolio vs are competitive set and tougher comparables which in the fourth quarter of 2018 benefited from the lingering hurricane activity in the southeast United States.
these results
Also correspond with overall industry softening in our key chain scales during the fourth quarter.
Despite the rep our environment. We are very pleased with the Investments. We've made in high value segments are paying off. This is especially true for the higher rev upscale segment where we significantly increased our presence last year. Thanks to the continued expansion of our Cambria brand. We once again achieved strong same store rep our growth for Cambria, which exceeded its compact set by 70 basis points in the fourth quarter.
We expect the brands long-term performance to be further bolstered in 2020 by the opening of 13 Cambria hotels taking the total Cambria system to over sixty Hotel.
The Cambria bran continue to expand and top rep our markets which will further enhance the revenue intensity of our portfolio and drive strong financial performance. We expect choices upscale portfolio to contribute and even greater proportion of the company's gross room Revenue in 2020. Furthermore. Our largest Extended Stay Brands would spring break. It's rough Parts share games versus local competitors by 210 basis points year-over-year in the fourth quarter.
finally
The initiatives we've implemented to improve the guest experience at our comfort hotels are working.
Comforts that completed the renovations experienced for the third consecutive quarter rep part index games versus their local competitors in our comfort pipeline continues to be more Revenue agent.
For both the first quarter and full-year twenty-twenty. We expect system-wide domestic to be between flat and a decline of 2% which is in line with industry expectations for our competitive set.
We are optimistic that are strong Pipeline and high rep our markets and geographies as well as the Strategic Investments. We are making to fuel growth will be a catalyst for long-term gain our expansion.
Our second Revenue lever is unit and rooms growth which benefits from the absolute size of our portfolio and the revenue intensity of its hotels.
For 4 year, 2019 Choice Hotels opened an average of nearly one hotel per day for a total of 332 domestic hotels representing over 31,500 new rooms.
Notably. We open the most domestic new construction hotels in a decade a 37% year-over-year increase from full year 2018.
In 2019, we increased domestic units by 1.6% to reach over 5950 hotels.
We are pleased with a domestic unit growth in our key segments for full year 2019 across are more Revenue in tents Brands and upscale mid-scale and the Extended Stay segment wage increase the number of hotels by 3.1% and grew rooms by 4.3% year-over-year.
Let me share a couple of highlights first. We increase the number of domestic rooms and our upscale portfolio to over 29,000 a 44% growth from the prior more specifically camera group. It's room by 28% while send increase the number of rooms by more than 50%
We surpassed 400 domestic hotels in our Extended Stay portfolio last year at 10% increase since year-end 2018.
We nearly doubled the number of woodspring openings in 2019 resulting in more than 8% growth in the number of domestic would spring hotels.
Mainstay in Suburban each experienced double-digit unit growth with nearly 16% and over 11% year-over-year increases respectively and finally we came to successfully execute against our International strategy in 2019 resulting in an increase of a number of units and rooms internationally by 3.5% and 7.54% respectively over the same period of the prior year.
The man for choice is Brands grew significantly in the fourth quarter where we awarded a total 307 domestic franchise agreements a 7% increase compared to the same period of the prior year of note. We achieved the best month ever in the company's history by awarding 220 domestic franchise agreements in December alone a 41% increase over December 2018.
Scale brands are a great example of the inroads. We are making we awarded 94 new domestic franchise agreements for upscale brands in 2019 a 27% year-over-year increase
43 of these agreements were signed in the fourth quarter alone a 30% increase over the same period of 2018 in addition. We executed 151 Global franchise contracts for our Ascend brand in 2019. The highest number for a single year in the Brand's history.
These results Drive even greater optimism for our 2020 Outlook.
You're in 2019. We increased our total domestic pipeline of hotels awaiting conversion under construction or approved for development to over 1,050 hotels.
This represents the largest domestic pipeline in the company's history accounting for nearly eighty five thousand rooms.
Importantly, we are very pleased with its composition at year-end new construction projects represented over three-quarters of the pipeline.
In addition to Comforts robust new construction pipeline fueling the brands future growth. We are very pleased to see momentum in the Extended Stay segment.
The Extended Stay domestic pipeline grew by 13% year-over-year to 315 hotels in 2019 driven by the continued expansion of the wood Spring Branch.
For full-year 2020 we expect net domestic unit growth to range between 1.5% and 2.5% Furthermore. We project the unit growth rate of our key segments upscale mid-scale and Extended Stay to increase further versus 2019 growth rates.
Our third lever, the price of our franchise agreements remains a significant driver of our Revenue growth as franchisees are willing to pay more for Our Brands affirming our strategy focused on Thursday franchisee profitability.
We are.
He's with a company's performance in this area both for the fourth-quarter and full-year 2019.
Are effective domestic royalty rate for fourth quarter 2019 through 10 basis points and for full year 2019 increased 11 basis points to 4.86% off the same period of the prior year.
2019 marks the fourth consecutive year of double-digit basis-point royalty rate growth for the company, which we achieved while simultaneously increasing demand to ensure our system.
We remain committed to providing our franchisees with the highest return-on-investment by driving their top and bottom lines.
As previously communicated we expect to see continued growth of the effect of royalty rate and projected to increase between a range of 4 and 8 basis points for full-year 2020.
Given the increasingly attractive value proposition. We provide the franchisees and their desire to be affiliated with Our Brands. We anticipate sustained growth of this lever for years to come.
Our fourth and final Revenue lever and one where we are seeing great success is our ability to expand our platform business through key Partnerships new technology and other key from the resources.
In 2019 this enabled us to further Drive our top-line revenue and deliver tangible value added solutions to our hotel owners and customers.
In 2019, we increased our procurement Services revenues 18% to 61.4 million dollars compared to the same period of the prior year. I believe that we can sustain strong procurement Services Revenue growth in the years ahead as we continue to increase the number of products and services to over 7,000 hotels guests and other travel Partners while expanding our platform before opening it up for questions. I will close with a few words about our Capital allocation strategy and our earnings outlook for 2020.
We remained.
Committed to investing in the business for the long-term and generating significant operating cash flow that allows us to continue to return Capital to our shareholders last year. We returned approximately $100 million dollars back to our shareholders through a combination of $48 in cash dividends and approximately Fifty Point six million dollars and share repurchases.
During the fourth quarter of 2019 the company's board of directors announced a 5% increase to the annual dividend rate to $0.90 per common share outstanding. I would like to now turn off outlook for the full year 2020.
Looking ahead for full year twenty-twenty. We expect adjusted ebitda to range between $378 and $385 and adjusted diluted earnings per share to range between $4.22 and $4.33 per share for the first quarter of 2020. We expect adjusted diluted earnings per share to range between a $0.80 and eighty four cents per share.
Continues to strengthen its position in the industry and we remain optimistic that we will continue to drive outside returns for years to come. We see 2020 as another year of investment and key strategic areas of our business these areas include further strengthening our franchisee value proposition and driving a larger room count continued focus on the revenue and tenth of our system while launching new brands that allow us to penetrate higher rep our markets and growing the number of value-added programs and services. We offer to our franchisees gas and other travel partners.
We expect these Investments to further fuel our franchise business and position a successfully for twenty twenty and well into the future at this time Pat and I would be happy to answer any questions operator.
Well now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone for using a speaker phone. Please pick up your handset before pressing the keys off all your questions, please press * then two this time will pose me momentarily to assemble of our roster.
First question comes from Sean Kelly Bank of America, please. Go ahead. Hi, good morning everyone and thank you for the the detail and the release and the prepared remarks. You know for patterns Tom was wondering if you guys could maybe give us a little bit more color on the net unit growth guidance. So, you know as we think about the the the the numbers that you provided here one and not the two and a half percent is probably a little bit on the low end of what you know, kind of we were thinking especially as you continue to move on or you expecting any sort of elevated level of you know, either terminations or voluntary, you know, kind of you know system clean up in that number and then overall just the basic fact, I think, you know, you actually came in within four Q was also very high. So was any of that just timing shift between maybe for killing one q that would be helpful. Sure. Thanks Shawn. I'll Don can speak to the timing I think broadly what we're seeing is as we mentioned in our remarks we're dead.
Developing hotels and higher red farm markets and higher red Parts segment. So as a result, we're doing a lot more new construction.
In hotels and we're developing in markets where entitlements and and the cost of Labor to actually get hotels built is actually, you know, probably more expensive takes a little bit longer seeing a little bit more of a delay in the amount of time. It's taking new coat Tails, once they start construction to actually open but that's reflective of the fact that we're pushing more into the upscale segment and we're we're not doing a lot more of our Comforts or in markets where higher red plum markets usually translate to to a little bit more time to get it through entitlement and actually get the the project open and then just in terms of Sean, I mean overall generally in line with where we thought we would could be just to ground everybody every six hotels or so. It's about 10 basis points. So just having a little bit of shift from Q4 to q1, which we did seem to shift could impact those numbers 10 basis points or Twenty basis points. Either way. I think what we're really optimistic about is when you take a look at those more Revenue in ten segments, obviously a little softer in the economy wage.
Just based on what we're seeing just in terms of conversion activity there, you know continuing to keep that portfolio relevant by cleaning some of the some of the lower performing units out of there. But when you take a look at those stronger segments, we were 3.1% this year. We expect to actually increase that in terms of growth rate in 2020. So that's obviously going to be a big tail in for us as we think about twenty twenty-five and those numbers actually are even when you think about Comfort declining moderately in 2019. We expect a comfort to actually return to growth in 2020 albeit moderate growth and then further accelerate back to historical averages in 2021 and Beyond
great and
If I could quickly would you be you know, I think Dom in your prepared remarks, you mentioned a little bit about Tax Strategies, you know, or or some items there. I think the tax rate did move around a decent amount in that impact them both the EPS growth. We saw in nineteen and then also probably has a material impact on the guidance for 20 just in terms of cadence. Could you give me just a little bit more color either of those strategies things that she can continue and and therefore maybe the guidance is conservative but hard to predict or is is just sort of a mean reversion back to low 20s the right place to be from here. I think the key is Sean. We actually do not guide to any of those discrete items which typically are a bit of a Tailwind for us in terms of a better tax rate for the full year. So when you take a look at obviously 2019, we are at a 15.7% We're guiding to a 22.5 but that does not include any of those discrete items. So we do definitely see more opportunity in the tax rate in 2020. We are also in the process of birth.
Implementing a new tax structure. So you're
To see a little bit of noise in the q1 numbers. You're probably going to see a pretty significant benefit in the reported, but from an economic perspective. Those benefits are going to be amortized over an eight-year. So 22.5 the the best guess that we have right now. Obviously, we see some additional benefits that we could see in terms of the discrete items. Thank you very much. Thank you.
Next question comes from Thomas Allen Morgan Stanley, please go ahead. Hey, good morning. I'm just following up on one of the earlier questions now that you're focusing much more on the higher hotels, actually think about your long-term unit growth targets. Thank you.
Yeah, so I think if you I'm sorry Thomas, I think if you look at the the growth rate that we're seeing typically in the upscale segment with both Cambria and essential, you know, the Ascend collection is, you know, existing hotels. So we're seeing a significant amount of growth in that brand right now and those are hotels that literally can get open house in as short as you know a day or three months. So, you know, it's sort of you've got a You've Got A Tale of Two brands in the upscale segment when you when you look at Comfort are off our comfort brand in particular has shifted a much more of a heavier mix on new construction. So his dhamma mentioned, you know, we do expect to begin to grow that brand again in 2020 with a, you know, took him back to sort of a historical Norm closer to 3% growth as we get to 2021 and Beyond so, you know, when you look at those two segments in particular, it's it's it's a changing story extension.
Today has become for us.
Both of new construction story with woodspring and now ever home. What's interesting about that brand is you know, you can get a woodspring built about 12 months. So the short timeframe in the markets where those are going into the the ability to grow that brand more rapidly is is a big as a big difference there from from mid-scale and then what's also happened in our Extended Stay branches were starting to attract sickly the Mainstay in suburb are getting more conversion grams conversion hotels into those Brands. So it's really three different stories. Each one has a different growth trajectory, but from a unit growth perspective overall, you know, we do look at that sort of, you know, sort of 2% at the midpoint is what we're expecting to see in twenty twenty topics. And when you remove Comfort specifically and when you remove some of the other some of the other noise when you take a look at just again those mid-scale and above segment, it was 3.1% removing Comfort out of there. You're actually closed off.
About 4% Just give them the
Find that you saw just give it a couple of transformation. So we are pretty much right at our historical averages in terms of our key Focus brands from our historical average has been somewhere between three and 4% per per month in the long term. We expect to get back to those rates.
Alphalt. Thank you. And then just on Revenue growth your guide. Can you give some qualitative comments around that down to two flat and then click on that call last week talked about seeing some recent strengthen bookings. Have you seen anything similar? Thank you.
Yeah, so on our on our guidance to me, I think the the overall industry continues to soften you're getting a you know a situation right now where Supply that's coming in is exceeding demand box in particular. You know, we look at the the two areas where we are over penetrated from an inventory perspective. There's oil and gas markets and and the southeast in particular those are expected not to perform as well as what you might see in the mountains States or in in on the west coast. So it is a performance mix perspective. What's great news for us to look at where our pipeline is. We do have a greater opportunity in our pipeline to to open hotels in those markets where we're currently underpenetrated.
And then when you take a look at just 20 20 January came in probably close to you know, negative mid fifty basis points or so. We are trending more positively in February month. And so again some of those Tailwinds that we expect just in terms of the strength of consumer obviously moved to Market being a bit of a Tailwind slightly better comps you could see, you know, some some improvements over over the first quarter. However, you know still are our best guest right now is in line with that negative to the flat.
Opal color. Thank you. Thank you.
It's question comes from please. Go ahead great. Also a question related to, you know, your unit growth expectations. Wondering if part of the missing 2015 was were removals higher than you were expecting and just looking at the Comfort brand you expected to return to knit unit growth and 20/20. Is that because it was there a sort of a dead life your franchisees where they would have had to accept the system by 2019 if they didn't make certain Investments, or I guess just trying to get a feel for why that Comfort will start to Trend up in 2020. Thanks.
Robin broadly speaking the we did continue to take some strategic terminations out of the Quality Inn brand of those were those were planned. I think what we saw a higher terminations was a club the economy segment where Econo Lodge and Rodeway our our our brands in that in that part of the in that part of the portfolio and that's a larger percentage off when you think about it as a segment as we have a lot of economy hotels, so that that's that's kind of a key driver on that front. I mean, I think on on the on on Comfort what we are seeing as I mentioned is it's just more of a shift towards new construction, which is is taking a little bit longer for us to see that unit growth show up. So as we we look at out and number of hotels that are actually beginning construction getting poured. We felt really good about the the guidance for giving on Comfort moving forward.
So so it's really it's not that removals will slow down. It's just that the new construction will will come online for a comfort. That's right.
Yeah, the the determinations out of comfort have been pretty steady around our historical average over the last two years. Okay, and then also on your royalty rate side, it's I think last time you had said you expected it to be kind of high single-digit for this year. And now the loan the range is is that for basis point just wondering if you could give us some color on what's happening with royalty rates. So we talked about it in moderating a little bit just given the fact that two years ago. We did raise the rack rates for six of the brands and then the additional six and so just a lot of it is dependent obviously on the the relicensing and renewal environment as well. We've seen a record number of relax and renewals in 2019. And so that sets a new royalty rate for those contracts over the contracts are transitioned to a new owner. So right now we're guiding to afford a basis point. Obviously the midpoint of that is 6 we still do see a path depending on what the the transaction.
Environment looks like in 2020 to achieve that top end of that guidance, but for the time being, you know, 4 to 8 is is a pretty fair range.
Great. Thank you. Thank you.
Next question comes from Anthony Powell Barclays, please. Go ahead. Hi. Hello. Good morning question on camera. Good morning. Are you seeing more more franchisees that on your competitors Brands and the upscale segment moved to Cambria for growth and have you seen that change and how the lenders look at Cambria in terms of loan-to-value or or rates at the brain gross?
Yeah, I think from the standpoint of lenders being aware of and starting to sort of understand the value of Cambria that that has improved over the last couple of years as we as brand itself has grown. We've we've pushed into higher red part markets and the brand is performing the question around do our owners own other brands. Absolutely and I do think it is something that we talked about on on prior calls, but since we don't have other upscale Brands, we really have a clean palette from the standpoint of open markets for that brand and that really resonates with developers like a particular Market, but our box doubt from from other competitive Brands so camera has become a nice option for those for those owners. So we do have owners that own cameras as well as competitive in the same segment.
Kind of things onto Capital allocation. There was a I know you want to you know, focus on the business more but
There was a pretty big year of you decline to share BuyBacks. You just revisit kind of overall buyback philosophy and and how that may look in 2020.
Well, I think I think first and foremost, you know, we are committed to returning to that three to four times. That's really our our Target leverage ratio repurchase activity obviously dependent on a variety of different factors. One of which is our Camry Investments that we're making right and when you take a look at what happened in 2019, obviously with the the assets that we ended up purchasing the equity in as well as some other, you know, potential inorganic opportunities. We thought it was prudent to keep the powder dry a little bit. But again, I think it's becoming clearer and clearer that they you know with the $725 million that we have allocated to Cambria. We do still do have tremendous amount of capacity on our balance sheet and can certainly continue to raise the dividend like we did this year off obviously return additional Capital to shareholders in the form of BuyBacks as well. We did also increase the authorization to four million. We had that conversation with the board late last year and so dead.
We have the ability to purchase up to another.
3.9 million shares as of today just to follow up on that answer you talking about inorganic opportunities and you talked about the revenue intensity of the portfolio or are there opportunities for me to maybe buy into wage even higher rep are categories except upscale. And can you maybe trim some of your economy Brands throughout the sales this year?
Well to take the second part we don't have any assets in the economy segment, but you know plan sales sales. Yeah. No, I mean we we look at our economy Brands as an opportunity for owners to get to know us to start out with us a lot of our very successful Comfort owners today, you know began with us with Econo Lodge back, you know for decades ago. So that's a great opportunity for us to attract new capital and new owners to our business. It's also a place where with owners have an asset and they don't want to put money into it say their equality and they want the money into it gives us an opportunity to portfolio to keep them keep them in the system. So I think it's a it. It's it's a it's a necessary piece of of who we are and it's a good it's great piece of of earnings of speaking more broadly on on the first part of your question. Um, you know, I think when you look at opportunities for us that are out there, you know, we have holes in our portfolio today. So, yep.
Upscale Extended Stay you think about an upper upscale brand where we don't have opportunity. Those may be opportunities for us at some point.
To do something on the acquisition front and so, you know from time to time. We we do consider those things but saddam's point, we may want to keep our powder Drive something like that becomes available.
Thank you. Thank you. Next question is from David Katz Jefferies, please go ahead.
Hi morning. Everyone morning David. So two questions one is can you remind us when we're looking at your balance sheet took $580 million. That's out. That's spread over a few different buckets. Can you remind us where that is? And in the past? I think you have talked about some Capital that has come back or that you recycled in the quarter of the year. Can you remind us of those? Absolutely David? So when you take a look at the 582 call it about just just south of 15% or so is key money about eighty million little more than seventy million is in the form of joint ventures where we have an equity partner. We have loans out of about call it a hundred and thirty million or so and then back on. That's we talked about that. So the owned assets are a part of that $725 million authorization as well on a recurring basis. We've been at about seventy-five million wage.
it's um and
And about forty million is what we actually brought back this year this year. We actually increase the disbursement slightly is about a hundred million that we outlaid and forty million was recycled.
Sir, I'm sorry the $75 million of disbursements. That's on an annualized basis. Correct? Roughly. Yeah, that's right. Okay, Thursday and then secondarily I I seem to remember and I did go back and look at some of your prior commentary where there was some expectation of unit growth acceleration. And it it seems as though it's been you know hovering around that 2% level, you know, what's changed or have things changed over the past couple of quarters that you know, maybe stretching some of that out.
Yeah, I think it's as we as we mentioned we're doing more new construction that that that's one piece of it, you know the economy segment where we still have a significant number of hotels. We are seeing more of you know, sort of flattish growth, you know more of the the owners and that segment that they come in if you look at our roadway brand that's a that's a brand where they can sign off and has agreement has a one-year out. So you they come in if it works for them, they'll stick with us. If not, they may move on. So the more exciting growth that we look for is really in the midscale a couple of segments in upscale and an extended stay and as we mentioned in our remarks, that's where you know, 2019. We had over 3% gross, you know to Dom's Point Comfort, which I'm turning around if you pull the pull that out of the number it's actually 4% gross. So it's a the historical growth of our of Our Brands be on the economy segment is where it needs to be dead.
We strategically been.
Turning Comfort around that's that's done basically, so you're going to see Comfort return to growth and then the exciting opportunities. We have above upscale extended say I think are going to be key drivers of growth going forward, Perfect. Thank you very much.
Next question comes from Patrick Shoals of SunTrust, please. Go ahead.
Hi, good morning. Pat and Dom Patrick. Good morning morning to your closest competitors who have reported earnings intercon in Windham. Both gave some type of quantification of the coronavirus on there. Either the rep or their earnings. I haven't heard it brought up at all this conference call. Are we to assume that it's very worst case scenario for you folks. Yeah, I would call it less than minimal. If you look at our portfolio. We have seven thousand hotels seven of wage in China. Those hotels have been temporarily closed as has happened with many of our competition and it's what's going on in the in the country. But when you look at it from a revenue perspective on our on our basis 0.02% of our Revenue, so from the standpoint of a market impact it is it is very very small dog.
I think when you look at inbound Chinese.
Is travel to the US and and you know our portfolio again, we don't have heavy concentration in those Gateway cities and a lot of our International inbound travel comes from markets other than China. So we're not we're not looking at a at an impact on the today. I mean broadly speaking it remains to be seen how this will evolve over time. So we we do remain open to potentially looking at what what what an impact could be but just broadly speaking as we look at its impact on our business. It is very very small gray appreciate quantifying giving those statistics with you. That's it.
Yeah, if you have a question, please press * then 1.
Our next question comes from some zeros Citigroup, please go ahead. Hi. Thanks for taking our question. I just wanted to ask you something about your home listening in the Extended Stay space. You mentioned in your opening remarks that you continue to see demand significantly ahead of Supply in that space. And I just wondering if you could just provide a couple more kind of color around why you think that kind of persistent imbalance has has kind of been the case there just cuz we don't usually think of that sort of existing so much in the hotels faith in general supply and demand man supplies, usually keeping up with demand. So what kind of your thoughts there and your decision to introduce, you know, another brand into that segment.
sure, so I think if you
Look at the 2019 supply and demand you have about 20% of the rooms sold in 2019. We're for stays of longer than seven nights and only 9% of the current inventory is purpose-built for Extended Stay. So it's a you know, there is a there is a a fact where consumers are probably staying longer in transient Hotel Chevrolet prefer to be in an extended stay hotel. So that's that that that's the first Factor the second round ever home is you know, we've got eight Decades of experience in the midscale segment and we have a cock cooperating model on the Extended Stay side of the house. So bringing the two together for some for a brand launch like ever home was the right thing for us to do we've worked with our current extension. They owners on the prototype to help design it to be a low cost to build option and also a low cost to operate for the midscale segment, you know, you think about the segment itself the average wage
Age there is fifteen years or older.
So it was time to bring a a new brand to the space and look at a lot of consumer research around what consumers in that segment want they want to be able to customize the space. They want to have them a space if you will and so there's a lot of things in the brand that allow the customer to move the furniture around to move the shelving around and it's really designed to to drive that that type of a a consumer into a product that's more purpose-built for them. And so we're pretty excited by the initial reaction. We've gotten from our developers. We've already broken ground on the first one expect to open it back to you. Thank you. And then so what would you without land you know what what are kind of the perky construction costs or
About $85,000 for a key.
Okay. Thank you very much. Thank you.
Next question comes from Jared's hosie on Wolf research, please. Go ahead.
Can you just tell us what you're expecting for? The owned hotels keep it that contribution in twenty twenty third quarter adjusted looks like it was negative but fourth-quarter positive. How do we talk about this line? And how much is it contributing to 2020 versus 2019? Thank you. You said from an eve? It's a perspective. So from the perspective, obviously, there's a range mid-point somewhere call at about 15 million or so in the owned assets from any of it, too, I'm not contribution in 2020 in 2019. It was about six million or so.
Okay, that's that's helpful. Thank you. And then on sg&a, what kind of growth is embedded in the guide for 2020? It looks like 2019 came in a little bit lighter than the guide. He talked about what drove that so late in the years and how are you thinking about 20 20? Yeah. So when you take a look at sg&a on a full-year perspective in 2019, it was it was flat. Now one on an apples-to-apples basis. It wasn't flat because I'm a member back in mid-year. We actually sold a small staff based company that was supporting our vacation rental unit. So about 5 million dollars of sg&a contributed to that particular entity is not included in those apples to apples sg&a probably grew closer to 1 to 2% or so, obviously with the softer rep our environment. We've been able to prove prudently manage the costs a little bit better than we had expected and forth a lot of the Investments that we were making in 2019. We were able to deliver a lower-cost. Now there was some timing differences between 19 and 20 as we talked about on the call 20/20 is expected to be an investment Club.
expecting to pay
Increase our estimate pretty pretty materially embedded in the numbers and not a 6% increase year-over-year from 19 and 2:20 and so between that and obviously there are surpluses and deficits on the on the system fun side of the house. We do expect to continue to make investments in these Revenue intense areas in 2020, but that's all obviously embedded in that guidance that you see
great. Thank you. And one more if I'm a Dom you called out some of the challenges two fourth-quarter revpar. Can you drill down a little bit further just to your rough part index in the quarter off how how that looks specifically to the cam said how it's been trending and then if you could give us the your your change and the absolute level that would be helpful. Thank you. What do you take a look at the the bed par in Q4 specifically, obviously a -2.1, you know Pat mentioned this but there was a lot of weakness in the oil and gas markets when you take a look at just the impact our portfolio that wage sixty basis points. So take that took us 21.5 and then there's a tougher hurricane, that we're lapsing and Q4 of 2018. And the southeast was another call, you know, fifty basis points. So from an index perspective, if you just normal eyes for those two specific items overall portfolio is pretty similar to our comp set actually probably about fifty fifty basis points or so better than the cop said if you log
Watch for those two specific areas. Um, and then
On the Comfort side of the house we talked about specifically those moved to Modern Comforts are continuing to outperform the industry. This quarter was about forty basis points or so. So we expect to see that Trend Trend continued in 2620 either add or you know slightly better than the midpoint of the industry guidance.
Great. Thank you. And I'm sorry just just one more quick one. Hopefully that Cambria was down 6% in the quarter. I guess, you know, I would have thought that it's this brand continues to ramp up maybe a little bit of a Tailwind too rough bar. Is that not what U historically seen any any color you can shut on why you know rough bar was down so much and Cambria for the red car is actually not a same-store revpar. When you take a look at same song part was actually up by 0.1. So it's about 70 basis points better than the cops set. The reality is, you know, almost half of the portfolio just given how new it is 50 hotels 24 of those hotels are still in real life. So when you take a look at it just from an overall portfolio perspective. It's dragged it down. But same, you know, same store again as as positive point one, which we're very excited about just giving where it is from an RPI perspective.
Okay. Thank you very much.
Thank you.
This concludes our question-and-answer session. I'd like to turn the conference back over to mr. Pages for any closing remarks, please go ahead. Thank everybody for your time this morning. We'll talk again in May when we announced our first quarter results. Have a great day.
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