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Extended Stay America Inc (STAY)
Q4Â 2018 Earnings Conference Call
Feb. 28, 2019, 8:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
See all our earnings call transcripts.
Prepared Remarks:
Operator
Greetings, and welcome to Extended Stay America's Fourth Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) Please note, this conference is being recorded.
I would now like to turn the conference over to your host, Robert Ballew, Head of Investor Relations. Thank you. You may begin.
Robert Ballew -- Vice President of Investor Relations
Good morning and welcome to Extended Stay America's fourth quarter 2018 conference call. Both the fourth quarter earnings release and an accompanying presentation are available on the Investor Relations portion of our website at esa.com, which you can access directly at www.aboutstay.com. Joining me on the call this morning is Jonathan Halkyard, Chief Executive Officer; and Brian Nicholson, Chief Financial Officer. After prepared remarks by Jonathan and Brian, there will be a question-and-answer session.
Before we begin, I'd like to remind you, that some of our discussions today will contain forward-looking statements, including a discussion of our 2019 outlook. Actual results may differ materially from those indicated in the forward-looking statements. Forward-looking statements made today speak only as of today. The factors that could cause actual results to differ from those implied by the forward-looking statements are discussed in our Form 10-K filed with the SEC on February 27, 2019.
In addition, on today's call we will reference certain non-GAAP measures. More information regarding these non-GAAP measures, including reconciliations to the most comparable GAAP measures, are included in the earnings release and the Form 10-Q filed yesterday evening with the SEC.
With that, I will turn it over to Jonathan.
Jonathan S. Halkyard -- President, Chief Executive Officer
Thanks, Rob and good morning, everyone. Thank you for joining us this morning to discuss our fourth quarter and full year 2018 results. With my first year as CEO of Extended Stay America in the books. I want to briefly highlight the strategy I laid out a year ago and update the progress we've made since then. A year ago, I reiterated that our primary priority and purpose is to serve our core guests, which our guests staying five nights or longer generally a week to a few months. Our core guests are usually traveling for business, working on temporary projects, attending training, preparing for relocation and so on. This is a very attractive guest profile, one our people and product are duly suited to serve. We are unique, relevant and valuable lodging option for this guest. And she presents us with the best economics and often reflects our positive experience and social media reviews both great results for our shareholders.
In 2018 for the first time in seven years the majority of our room occupancy growth came from this core Extended Stay guest. We believe this modest but important shift in guest profile led to an approximately one point increase in RevPAR index for the year. Last year I also reiterated our commitment to accelerate our progress on the ESA 2.0 strategy through the sale of non-core assets at attractive free cash flow multiples while retaining franchise agreements, new development of ESA hotels in attractive market, sale of ESA franchises and targeted capital investments. We made strong progress on all of these fronts in 2018.
First, we updated our new ESA 2.0 building design in 2018 to be more targeted toward our core guest and more efficient for us and for our partners to develop. We eliminated $20,000 per key and construction costs from our initial design by removing thrilled and unneeded common area space that our core guest does not utilize core value. Next, we sold 72 hotels during the year at an average pro forma free cash flow multiple of approximately 18 times with all but one of those -- hotels retaining long-term franchise or management agreements.
We grow our pipeline to nearly 7,000 rooms or 10% of our existing base in 2018 with roughly 75% of that pipeline being franchised hotels. And we added two new hotels to the system in the hot markets of Rock hill and Greenville, South Carolina. We acquired the 11 sites in markets like Tampa, Florida, Austin, Texas and Chandler, Arizona and have a options on another four sites. We commenced construction on four of the sites we acquired. As Brian will describe in his remarks, these investments is set the stage for a very appealing array of capital investments in 2019 and 2020.
Finally, we completed the groundwork needed for our next phase of renovations with 40 years with investment levels informed by customer preference and strong capital return thresholds. These renovations have begun and will continue during 2019, according to a scheduled designed to minimize the inevitable construction disruption. As with the new builds, we are enthusiastic about the returns available from the segmented approach to renovation investment.
And finally, a year ago I outlined my desire to simplify our internal processes questioning any activity that did not support our hotels and our core guests. We undertook a complete review of the activities and our organization. We identified and took action on over $10 million in savings. We took some of those to the bottom line, but we also chose to reinvest some of those dollars into our General Managers the most critical part of our operating team. We revamped our GM training program complete with on the job training at one of our 40 training hotels intensive e-learning and culminating with an exciting week here at our headquarters, which we now call the hotel support center.
Over the past few months our General Manager turnover rate has declined over eight points. We simplified our operating organization, eliminating a layer of management reducing our 16 regions to 10 and aligned our sales and revenue management teams with this organization. We are now more effected and efficient overhead expenses were down by about $2 million in 2018 after having invested an incremental $1 million in our development organization.
Now this is all exciting stuff. But as a former CFO, I can't resist talking about our shareholder-friendly capital allocation policy also a hallmark of our strategy, which is one marked by a healthy dividend payout ratio and repurchases of our own shares. During 2018, we returned approximately $250 million to shareholders, all while retiring nearly $150 million in debt and significantly increasing the cash on our balance sheet. We finished the year at 3.7 times net debt to adjusted EBITDA, down from 3.9 times at the end of 2017. This improvement in our balance sheet was recognized by Moody's in the second half of 2018 as Moody's upgraded all charges of the company's debt and revolvers.
Now I'll spend just a couple of minutes on our fourth quarter accomplishments between, before turning it over to Brian. Clearly, our core business performed well during the quarter and the year, illustrated by strong FFO and adjusted paired share income per diluted paired share. We achieved this by growing revenues, the right way from our core customer, and by growing our RevPAR index during the quarter by 50 basis points compared to our comp set.
We sold a portfolio totaling 14 hotels during the quarter and an attractive free cash flow multiple of 18 times for gross proceeds of $38 million. Bringing us up to four long-term franchise partners totaling 71 hotels with commitments from each of those four partners as well as several others to grow our room count in the near future. These commitments combined with additional franchise application and our own on balance sheet pipeline growth allowed us to grow our total pipeline from 52 hotels at the end of the third quarter last year to 57 with one hotel opening in the fourth quarter.
We have over 60 hotels in the pipeline as of this morning. And approximately three-fourth of this pipeline, our franchisee hotels, showing the strong demand for these hotels from third parties. Just two weeks ago, I was at the groundbreaking of our first new franchisee built hotel with KARA Hospitality. We expect to make additional progress on franchisee newbuilds as well as conversions by our franchise partners further in 2019.
We launched our next phase of targeted renovations in the fourth quarter with four different tiers of renovations ranging from a basic lifecycle refresh up to a more transformational renovation of our hotels with the highest potential. Capital investments beyond the lifecycle basic refresh, we believe will yield a strong double-digit cash-on-cash return and will be focused on hotels we believe can support more investments and higher ADRs.
We expect to renovate approximately 60 to 70 hotels per year over the next seven year renovation cycle. We are innovating this year, testing several new ideas for the brand in 2019. These include an enhanced breakfast offering, offering a pantry, food delivery, expanded benefits for Perks loyalty members and expanding the availability of fitness centers in our hotels. We will update our plans and performance of each of these tests throughout the year.
Well, one of the strengths of our product is our standardization, we also note is essential to innovate around the changing landscape of competitive action and customer preferences. For this reason, we are also investing in technology at our hotels including enhanced WiFi, TV streaming capability and a more robust property management system. These enhancements will improve our guest experience, improve our operational efficiency and lay the foundation for future mobile check in and value-added recognition of extended Perks loyalty members. As of today, up to 35% of our hotels are benefiting from these new technologies and we expect to complete the rollout to all company owned hotels this year.
Looking into 2019, we expect the overall macro environment to be similar to 2018 with room supply growth, both for the total industry and our price point expected to be unchanged at 2% and less than 1% respectively. And with GDP growth of approximately 2% to 3% in the U.S. We expect to continue to make significant progress on ESA 2.0 in 2019. With several additional portfolio refranchise sales, growing our pipeline to as high as 100 hotels and opening our first new purpose-built ESA hotels and more than a decade.
We expect franchisees to add hotels to the system this year through conversions and we will invest in technology with a focus around the guest experience, all while returning capital to shareholders and continuing to improve our balance sheet.
I'll now turn the call over to Brian to discuss our financial results further and our 2019 outlook. Brian.
Brian Nicholson -- Chief Financial Officer
Thank you, Jonathan. We were pleased with our results this quarter. As comparable systemwide RevPAR in the fourth quarter increased 0.9% compared to the prior year, aided by a 310 basis point increase in occupancy and partially offset by a 3.4% decrease in Average Daily Rate or ADR.
As we've mentioned in prior quarterly calls, Hurricanes Irma and Harvey, which made Landfall in the third quarter of 2017, resulted in meaningful business for us in the subsequent quarters during the recovery. Excluding this hurricane affected markets, our comparable systemwide RevPAR growth during the first -- fourth quarter was quite strong at 4%. There was less renovation disruption than we had expected during the quarter. However, Houston and Florida did have a tougher comp cycling than we had expected.
During the fourth quarter, comparable Company-owned RevPAR increased 0.7% while absolute Company-owned RevPAR increased 3.9%, reflecting the improved remaining portfolio quality after non-core dispositions. For the full-year 2018, comparable systemwide and Company-owned RevPAR increased 2%. Revenue in the fourth quarter increased for both nightly guests and Extended Stay guests with a bit more revenue growth coming from our longer stay guests, despite cycling on significant long stay business boost in Florida and Houston from the hurricane damage in the fourth quarter of 2017. Hotel operating margin declined 190 basis points in the fourth quarter to 51.1%, in line with our expectations. Increased payroll, reservation, maintenance and marketing expense, led to the decline in hotel operating margin during the quarter. For the full year 2018, hotel operating margin dipped 100 basis points to 54%.
Corporate overhead expense, excluding share-based compensation and transaction costs increased 2.2% to $21.1 million during the fourth quarter. Our adjusted EBITDA in the fourth quarter was $126.6 million. Adjusted EBITDA during the quarter was impacted by the lost contribution of approximately $8.9 million for hotel dispositions in 2017 and 2018 . Adjusted EBITDA for the full year of 2018 was $599.7 million, reflecting the lost contribution of approximately $22.0 million from recent hotels dispositions. Interest expense during the quarter decreased by $3 million to $29.8 million due to less outstanding debt and a decline in the LIBOR spread on our term loan, partially offset by an increase in LIBOR rates.
Income taxes decreased $11.9 million to $6.9 million during the quarter, driven by a lower effective tax rate from tax reform and lower pre-tax income. For the full year, income taxes decreased $17.4 million to $42.1 million. Adjusted FFO per diluted Paired Share increased 3% in the fourth quarter to $0.41 compared to $0.40 in the same period in 2017. The increase was driven by a lower tax rate and reduction in share count from Paired Share repurchases.
For the full year 2018, adjusted FFO per diluted Paired Share increased 9.4% to $2.02 compared to $1.84 in the same period last year. Net income during the fourth quarter decreased 1.9% to $39.4 million as we cycled on a gain from an asset disposition, in 2017. Partially offset by lower income tax expense. For the full year 2018, net income increased 23% driven by lower depreciation expense, lower income tax expense, and an increase in gain from asset sales, partially offset by increased impairment expense.
Adjusted Paired Share income per diluted Paired Share in the fourth quarter increased 9.2% to $0.21 per diluted Paired Share from $0.19 in the same period last year. The increase was primarily -- due to a lower tax rate, lower depreciation expense, lower interest expense and a lower share count from Paired Share repurchases. For the full year 2018, adjusted Paired Share income per diluted Paired Share increased 14.4% to $1.14 compared to $1.00 in 2017.
We ended the fourth quarter was our net debt to trailing 12 month adjusted EBITDA on a pro forma 554 hotel basis at 3.7 times, a decrease from 3.9 times at the end of 2017. Our total cash balance finished at $303 million for the year compared to a $151 million at the end of 2017. The increase in our cash balance was driven by strong free cash flow during the year as well as asset dispositions. Gross debt outstanding was $2.44 billion, down from $2.59 billion at the end of 2017. We are pleased to have been able to reduce leverage over the past several years and reduced our term loan spread to LIBOR, which is a reflection of both our prudent financial policy and our high free cash flow business model.
Capital expenditures in the fourth quarter were $61.7 million, including $12 million for renovation capital, land acquisitions and other ESA 2.0 costs. Including opening a brand new hotel in November from an acquisition purchase in the third quarter of 2018. Our own balance sheet development pipeline at the end of the year stood at 15 hotels. While our franchise pipeline, grew by eight hotels during the quarter to 42 hotels. We have broken ground on six owned hotels as of this morning and expect four of those hotels to open in the back half of 2019.
For the full-year, capital expenditures totaled $209.3 million, lower than expectations as we spent less than expected on renovations during the quarter due to permitting and other time related activities. Yesterday, the Board of Directors of Extended Stay America Incorporated and ESH Hospitality Incorporated declared a combined cash dividend of $0.22 per Paired Share, payable on March 28th, 2019 to shareholders of record as of March 14th, 2019.
Our dividend yield was approximately 5% at recent trading prices, which is higher than our weighted average and marginal cost of debt. During the fourth quarter, we repurchased approximately 0.3 million Paired Shares for $5.7 million. In our past two earnings calls, Jonathan has highlighted, how our boards are and how we are open to a variety of actions in order to create shareholder value. During the fourth quarter in light of our consideration of such possible actions we decided to suspend our open market share repurchases.
For the full year 2018, we repurchased approximately 4.3 million shares for $85.3 million. Our remaining share repurchase authorization is currently over $110 million. As Jonathan mentioned earlier, we were pleased with the progress we made during the quarter on ESA 2.0. This included a portfolio sale of 14 hotels for approximately $38 million, reflecting an 18.1 time pro forma free cash flow multiple.
Given that our shares traded at pro forma free cash flow multiple of approximately 11 times, we think this arbitrage represents a great deal for our shareholders. Additionally, the buyer agreed to build or convert seven additional ESA hotels over the next several years. This brings our refranchise activity to approximately half of our outlined 150 hotels by the end of 2021. While, cash is fungible, we expect our priorities for our operating cash flow and gross proceeds from asset portfolio dispositions to be used for capital investments in the newbuilds and renovations, in the share repurchases, debt retirement and continued strengthening of our balance sheet.
Looking to the first quarter of 2019, we expect comparable systemwide RevPAR growth will be between negative 2.5% to negative 0.5%. Our first quarter outlook reflects approximately 250 basis points to 300 basis points of drag cycling hurricanes in 2017, as well as approximately 50 basis points of drag expected from renovation disruption activity during the quarter. We expect adjusted EBITDA of between $114 million and $120 million during the first quarter, which reflects $6.9 million in lost contribution from hotels sold in the last year.
For the full year 2019, we expect comparable systemwide RevPAR growth of 0% to 2% and adjusted EBITDA of $560 million to $580 million. This includes loss contribution of approximately $21 million from asset sold in 2018. Additionally, this includes headwinds from renovation disruption and cycling hurricane business early in the year totaling approximately 2%, but does not reflect the potential upside from testing tweaking our product offering in select markets, including as an example and expanded breakfast to which Jonathan alluded earlier. We expect to provide more color on these initiatives over the next couple of earnings calls.
This guidance does not include any further asset dispositions. We expect our net systemwide unit count to grow by 5 to 15 this year, depending on the number of conversions completed in 2019. Partially offset by two hotels sold for better and higher use about a year ago that will be taken offline permanently for redevelopment. We expect capital expenditures in 2019 to be between $310 million and $360 million. This includes approximately $80 million to $90 million and maintenance CapEx including insurable events $85 million to $100 million in renovation CapEx, $110 million to $125 million in new build CapEx and the remainder at IT and corporate investments.
We expect our annual interest expense to be approximately $126 million in line with 2018, as a rise in LIBOR is expected to offset decreased debt outstanding. We expect adjusted Paired Share income per diluted Paired Share of between $1.02 and $1.14 per paired share. Through our dividends and Paired Share repurchases we expect to return between $220 million and $270 million this year to our shareholders, which represents roughly 7% to 8.5% of our recent market capitalization.
Operator, let's now go to questions.
Questions and Answers:
Operator
Thank you. (Operator Instructions) Our first question is from Harry Curtis with Instinet. Please proceed with your question.
Harry Curtis -- Instinet -- Analyst
Good morning, everyone. Jonathan, just a quick -- question on your thoughts on probable or an appetite for asset sales in 2019, what's -- what are you thinking there?
Jonathan S. Halkyard -- President, Chief Executive Officer
You said that, I guess probability and appetite. I think both are quite high. That we -- we're very happy with the -- not only the results of our efforts back in 2018, but the partners that we have brought on who are now franchisees of ours. So we're enthusiastic about what's happened so far we're about halfway toward our goal that we laid out in terms of asset sales and refranchising.
So, I would fully expect that we would continue this year. I think it's unlikely that we would sell the number of hotels that we sold in 2018. But I think it's quite likely that we will do the kinds of transactions we did in 2018, meaning portfolios of somewhere between 10 and 20 hotels, and I would certainly be enthusiastic about doing that with partners, including some who have already acquired our hotels, who have really become experienced and operating them and I think our dedicated to growing the portfolio. So I think there is more to come in terms of asset sales this year.
Harry Curtis -- Instinet -- Analyst
And there is an appetite on the part of these buyers you think to continue this year.
Jonathan S. Halkyard -- President, Chief Executive Officer
Absolutely, yeah. They've all I think all have expressed an interest in that to us certainly most of them. Yeah.
Harry Curtis -- Instinet -- Analyst
Then, my second question. You ended the year with reasonable amount of cash on the balance sheet. Did you have an appetite to buyback more stock in the quarter end, and your comments about being opened to actions. Is there anything that you can share with us on that topic.
Jonathan S. Halkyard -- President, Chief Executive Officer
I think you know I think we'd all agree that our shares during the quarter were valued an attractive levels. I think the same will be said of most in lodging at certain points during the fourth quarter, but beyond what Brian said in his prepared remarks with respect to our share repurchases there's really nothing else that I would add to that.
Harry Curtis -- Instinet -- Analyst
Very good. Thanks very much.
Jonathan S. Halkyard -- President, Chief Executive Officer
All right. Thanks, Harry.
Operator
Our next question is from Anthony Powell with Barclays. Please proceed with your question.
Anthony Powell -- Barclays -- Analyst
Hi, good morning, everyone. The follow-up to that question. Is the share repurchase other gets plan -- any open market still suspended? Or if not, when would it be unsuspended?
Jonathan S. Halkyard -- President, Chief Executive Officer
Hi, Anthony, it's Jonathan. Yes. Our share repurchases are still suspended.
Anthony Powell -- Barclays -- Analyst
All right. Got it. And this, you mentioned that you made progress or moving to longer stay guests in 2018 and that's helped your RevPAR index. Did that also help your margins by reducing cost and should it be even more of a cost benefit to that effort in future years.
Brian Nicholson -- Chief Financial Officer
Hi, Anthony, this is Brian. Yes. As we move to longer stay guests, we do get a marginal improvement in the cost to serve each occupied room nights, if you will, obviously weekly housekeeping is more cost efficient and housekeeping for guests who were cycling in on a one or two night basis so that does represent a potential improvement and one of the reasons that we are targeting those guests even if marginally lower ADR.
Anthony Powell -- Barclays -- Analyst
And did it have any -- did it have a tangible impact on margins in the quarter or year? Or is that still kind of more of a theoretical benefit in future quarters.
Brian Nicholson -- Chief Financial Officer
The risk of sale in Q2, I would say it had a marginal impact on margins during the quarter and the year, but obviously, as we continue to put our focus there that will, we will expect a slight benefit to margins.
Anthony Powell -- Barclays -- Analyst
All right. Great. Thank you.
Operator
Our next question is from Chris Woronka with Deutsche Bank. Please proceed with your question.
Chris Woronka -- Deutsche Bank -- Analyst
Hey, good morning guys. Jonathan, want to ask you. I know you've laid out the target of asset sales by 2021. You've obviously gotten pretty favorable pricing on what you sold so far. You know are there situations where you might look to you would consider selling more, more than that at all. And the real question is, is there an ultimate level of hotels or of EBITDA that you kind of don't want to go below when thinking about the size of the company.
Jonathan S. Halkyard -- President, Chief Executive Officer
Going to the second question first. I think there is there, conceptually, yes, there is we believe that, that these assets, provide strong returns on invested capital, we have advantages in markets where we have concentration of these assets and we believe that there are there continue to be opportunities for improvement in the performance of these businesses, either through our operating model or through additional investment.
So this company will continue to own and operate a substantial number of hotels well into the foreseeable future. With respect to your first question, we did lay out a target of 150 hotels that we would sell and refranchise by 2021, that's not necessarily an endpoint but, it was taken a ground we thought was important to put and when we introduced at a five year time period. But there is certainly the potential that we would go beyond that number and as we've done our work internally, we've got a group of around 175, 185 hotels that we believe our candidates for disposition and refranchising and their candidacy is informed by the markets that they are in their concentration or lack of concentration in our system and some other considerations. So it is certainly possible that we would go beyond that 150 hotel number, perhaps even by the end of 2021 and perhaps even up to the -- that higher bound I just described.
Chris Woronka -- Deutsche Bank -- Analyst
Okay. That's very helpful. And just as a follow-up, you mentioned some of your third-party franchisees doing some conversions. Given that your -- I know your new prototype is a little bit smaller footprint, is it -- our conversions something that the franchisees you think can do -- can do a lot more of?
Jonathan S. Halkyard -- President, Chief Executive Officer
You know, it's a good question and well posed. I -- We've looked at conversions in our own system over the past several years and it's something that we have not done much -- we've just done two in the last year, but our franchisees have brought some initial ideas that we think are very promising, very certainly enthusiastic about doing it and it does have the advantage of speed and I think some key learnings for our franchisees. So I think that if you would asked me a year ago, I might not have said as much about conversions being a part of the unit growth story. But I do think now that it is over the next couple of years going to be a part of that growth story.
Now, the important thing to notice that, a conversion candidate, I think really needs to already have kitchens in them and otherwise, I would expect the cost of conversion would be unattractive. But there are quite a few hotels that have that format, which I think are going to be strong candidates for conversions and I'm -- we're encouraging our franchisees to look at that.
Chris Woronka -- Deutsche Bank -- Analyst
Great. Thanks, Jonathan.
Operator
Our next question is from Smedes Rose with Citi. Please proceed with your question.
Smedes Rose -- Citigroup Inc -- Analyst
Hi, thank you. I wanted to ask you in your guidance outlook for this year. What sort of wage increases are kind of baked into your guidance?
Brian Nicholson -- Chief Financial Officer
Hi, Smedes. This is Brain. It really varies market-by-market. We expect it to be higher in coastal markets and especially the West Coast than other parts of the country, but we've built in wage increases that kind of range between 2.5% to 4.5% to 5%.
Smedes Rose -- Citigroup Inc -- Analyst
Okay. So I mean, on average, maybe something like 3% just across the portfolio or...
Jonathan S. Halkyard -- President, Chief Executive Officer
Yeah. I'd say it probably closer to 3.5%, but that's right.
Smedes Rose -- Citigroup Inc -- Analyst
Okay. And then Jonathan, you mentioned, focusing on the five night or longer guests. So what percent of your occupancy now is coming from that higher margin customer?
Jonathan S. Halkyard -- President, Chief Executive Officer
I think it's about -- it was about 43% in the fourth quarter from those. Now that's from long-term debt. So that's 30% and above and I believe the kind of 7% to 29% are weekly guest plus the 30%. So everything above say a week was about 65% of our business.
Smedes Rose -- Citigroup Inc -- Analyst
Great. Okay. Thank you.
Jonathan S. Halkyard -- President, Chief Executive Officer
Thanks.
Operator
Our next question is from Chad Beynon with Macquarie Group. Please proceed with your question.
Chad Beynon -- Macquarie Group -- Analyst
Hi, great. Thanks for taking my question. On the first quarter guidance, wondering if you're factoring in anything from the government shutdown. And then could you just elaborate a little bit more in terms of -- if the hurricane affected markets impact or lasting longer than what you expected and if those RevPAR levels are kind of back to, what you saw before you're benefiting from that? Thank you.
Brian Nicholson -- Chief Financial Officer
Hi, Chad. This is Brian. As we were going in -- as we were measuring impact, as we've gone through the quarter. Yeah, I think we made reference to this. We had sort of an expectation of what baseline performance was especially in Florida in the fourth quarter and first quarter last year. So 2017, 2018, it can be difficult to know exactly what is hurricane related business and what isn't. Some guests will check in as female guests, but then other insurance adjusters whatever we'll just check in as individuals. And so you really have to kind of evaluate, how they're coming in by channel and what they're paying for the rooms and how those trends compared to what we saw before or after the events. As we cycled on it this year, I think we realized that there was perhaps more of that business, then we had appreciated, what we were going through the event last year.
In response to your first question about the government shutdown. We watched that very carefully, especially in the DC market, but then looking at government channels elsewhere, that did have an impact, but during the time of the government shutdown, it was not as significant as you might think, maybe 30 basis points to 40 basis points in any given week, when the shutdown was in effect.
Chad Beynon -- Macquarie Group -- Analyst
Okay. Thank you. And then just on the corporate travel side. Yeah, just striking more deals with more corporations as you kind of reflect on 2018 and maybe some of the conversations that you had with bigger corporates. Were you able to get more companies on the books or maybe more commitment? So as we think about 2019-2020 maybe that corporate versus leisure transient will naturally shift just because of what you were able to do from a negotiation standpoint, any color there would be helpful?
Brian Nicholson -- Chief Financial Officer
Okay. Yeah, in terms of reaching out to and acquiring new corporate accounts. There is a significant effort ongoing that effort is pretty concentrated in the fall, as we look to gain commitments for the coming year. We were pleased to bring in new commitments and larger commitments from a number of corporate accounts. Obviously, there will be some accounts who will contribute less business going forward than they have in the past. So there's always an effort to try to drive replacement as well as incremental business. But yes, it is our intent and we would hope in 2019 that we will see a marginal shift to more corporate and less transient, less personal guest mix.
Chad Beynon -- Macquarie Group -- Analyst
Okay. Thank you very much. Best of luck.
Brian Nicholson -- Chief Financial Officer
Thank you.
Operator
Our next question is from Michael Bellisario with Robert W. Baird. Please proceed with your question.
Michael Bellisario -- Robert W Baird -- Analyst
Good morning, everyone.
Brian Nicholson -- Chief Financial Officer
Good morning.
Michael Bellisario -- Robert W Baird -- Analyst
Just on the company-owned pipeline looks like it went down to the net of an opening and it mostly came out of that under option category, maybe little more detail on what happened there and why did those properties fall out of the pipeline?
Jonathan S. Halkyard -- President, Chief Executive Officer
Basically, it's just -- as we looked at the properties that we had under option there were a couple that we've decided that we are not actively pursuing at this point. Yes, I would say that we feel better about the relatively small property set in and our other option group right now than we did a quarter ago -- or feel better about initial closing.
Michael Bellisario -- Robert W Baird -- Analyst
Is that costs or location or a combination of both?
Jonathan S. Halkyard -- President, Chief Executive Officer
It's really about the entitlement process once we get into that and explore what it might require, we decide to pass. So I guess, indirect answer to questions, kind of a cost issue in the end, cost and timing. But it's driven by the entitlement discovery process.
Michael Bellisario -- Robert W Baird -- Analyst
Got it. That's helpful. And then just for guidance on the margin side. Can maybe you provide kind of what's embedded there for your '19 numbers? And then all those tweets at the property level, you mentioned, does that impact margins at all in '19 and any increased property level expenses that we should think about?
Jonathan S. Halkyard -- President, Chief Executive Officer
Let me take that on the front end. You know as we test these tweaks and I used enhanced breakfast as an example, we have offered an enhanced breakfast in certain markets, primarily in Florida for some period of time the cost per occupied room is about $1 higher than it is for our system average. Our grab-and-go breakfast that we offer in all of our hotels is really oriented to breakfast bars and muffins, but the enhanced breakfast adds milk, breakfast cereals, yogurts, that sort of thing. It does carry an additional cost, we would -- as we test this in more hotels, we would only continue to roll this, if we believe the rate that we capture would more than offset that cost increase. So you might see some slight increases on the margin and again I'm talking about $1 per occupied room in a subset of hotels, but with ADR that more than compensates.
Michael Bellisario -- Robert W Baird -- Analyst
That's helpful. And then overall for the entire portfolio on the margin front for '19?
Brian Nicholson -- Chief Financial Officer
Yes, so overall -- the overall portfolio. We have a few drivers, Smedes asked about labor earlier. We also have insurance costs and someother costs that are driving our cost that are driving our costs that -- what we expect to be a higher percentage rate than our revenue growth if our RevPAR growth 0% to 2%. Obviously, with $21 million impact from the hotels that were sold last year and that last contribution the top end of our EBITDA guide is that within $1 million or $2 million of what we achieved in 2018. So we believe that we would replace EBITDA even with this cost acceleration with something little less than 2% RevPAR growth. And then if RevPAR growth by chance, we're in the 3% to 3.5% range than we would see margin percentage either maintained or grow.
Chris Woronka -- Deutsche Bank -- Analyst
That's helpful. Thank you.
Operator
Our next question is from Joe Greff with JPMorgan. Please proceed with your question.
Omer Sander -- JP Morgan -- Analyst
Hey, good morning. It's Omer Sander on for Joe. Thanks for taking my question. Our first question relates to the Board's evaluation of the corporate structure your proactively brought this topic about two earnings conference calls ago. Why is it taking so long to figure out. Is it something to do with the business? Or do you need more progress on asset sales, new franchise signings proof of Extended Stay 2.0? Or is it sector valuation related. To what extent of the Board appreciate where we are in the lodging and overall economic cycle? That is to say, not early or middle but at least later relative to history.
Jonathan S. Halkyard -- President, Chief Executive Officer
Our place and time in the lodging cycle is something that we and our Board consider it -- consider continuously. We do it as you would imagine, with respect to our consideration of our operating and capital budgets. Our activities as it relates to new hotel builds and dispositions. Our view of the -- the near and medium term prospects for the industry demand-supply growth and so on and forms, pretty much every decision that we consider at the Board level with respect to your first question, I would refer you back to our last two earnings calls and to Brian's comments earlier in this call.
Omer Sander -- JP Morgan -- Analyst
Got it. Thanks. And then can you just please discuss January and February RevPAR and OpEx trends on year-over-year basis, and actually, you do it for us. Thanks.
Jonathan S. Halkyard -- President, Chief Executive Officer
Sure. As we went through the third quarter last year. Third quarter was our strongest quarter in 2018 from a RevPAR production standpoint. And as we moved sequentially through the quarter it was strongest in January and kind of came down toward March it was something in the neighborhood of 5%, 4% and 2%. So obviously cycling on that not only cycling on the storm impacts of Houston and Florida, but just cycling on the overall strength of RevPAR growth last year has been a challenge as we've begun this quarter. The impacts that we would expect from those store markets by the time we get to second quarter is half or less of the impact that we saw in the first quarter. And so we expect to continuing build in our RevPAR momentum as we go through the year.
Operator
Our next question is from David Katz with Jefferies. Please proceed with your question.
David Katz -- Jefferies -- Analyst
Hi, good morning everyone. I wanted to maybe face this in a different direction, which is, what opportunities do you see out there that can afford you or offer you bigger bites in terms of the franchising business are there institutional grade or sort of larger sizes entities you know that you can engage with that may want to sign up for, as I said, larger groups of hotels in one shot.
Jonathan S. Halkyard -- President, Chief Executive Officer
Hi, David. It's Jonathan. I think that there is certainly the potential for that and we've begun that I believe with some of the buyers of our existing portfolio. These are in most cases experience developers of hotels and we would expect while they have committed to five to seven additional hotel developments that they certainly have the capacity and competency to do more than that. This is I think important to note that it's still fairly early days in our franchising efforts, but we are seeing I think increased traction from both small and large experienced operators, they're attracted by the margins in the business, the fact that we own and will continue to own over 500 of these hotels that they have proved to their ability to succeed in virtually every market and demand circumstance in this country. So, believe me, we are we like -- like you and our shareholders think that this is a big opportunity for us and we're after it aggressively and I think that I think our results in signing up additional franchises this year will prove that out.
David Katz -- Jefferies -- Analyst
Got it. Thank you. That's it from it.
Jonathan S. Halkyard -- President, Chief Executive Officer
Okay. Thanks David.
Operator
Our next question is from Stephen Grambling with Goldman Sachs. Please proceed with your question.
Stephen Grambling -- Goldman Sachs -- Analyst
Hi, thanks, maybe even a follow-up on that, as you look across the portfolio. How much disparity is there across EBITDA per key and returns and what typically drives that delta. And as you're looking at those additional asset dispositions. I guess how might those metrics compare when you're think about what's been target -- what's targeted versus what has already been completed. Thanks.
Brian Nicholson -- Chief Financial Officer
Steven, this is Brian. In terms of EBITDA per key there is decent variance, the hotels that are toward the lower end of the EBITDA production spectrum or call it in the neighborhood of $5,000 per key maybe even lower than that. And then on the upper end of the spectrum can be four times, five times, six times that amount. Really what drives that is markets more than anything else, hotels that have an abundance of demand drivers have limited supply due to geographical or other constraints. So there's a big difference between hotels, in say, certain markets in the Midwest versus hotels in the San Francisco Bay Area. I'm sorry, what was the second part of your question?
Stephen Grambling -- Goldman Sachs -- Analyst
Well, so, I was going to say, how does the properties that I guess, are being targeted to sell through 2021 compared to what was already completed on those metrics?
Brian Nicholson -- Chief Financial Officer
Yeah, they are very similar in terms of what we've already completed on those metrics. As you may imagine some of those hotels in markets where the geography is less tight or where the concentration of demand drivers is not as high as say in West Coast markets. Those are hotels were also, We don't have necessarily the concentration of assets that -- that makes the management of those hotels, more efficient or other characteristics that we've defined four hotels that we would like to maintain within our portfolio.
Stephen Grambling -- Goldman Sachs -- Analyst
Helpful. And one other follow-up this maybe a little bit tougher, but some of your peers who have gone down the path of separating our opco and propco continue to buy back stock up until I believe the last quarter before split. So I guess any other thoughts you can give on the rationale behind stopping the buyback.
Brian Nicholson -- Chief Financial Officer
No, Stephen, nothing beyond what we've said in our prepared remarks and responses to a couple of questions earlier in the call.
Stephen Grambling -- Goldman Sachs -- Analyst
Fair enough. Thanks so much.
Brian Nicholson -- Chief Financial Officer
Thanks.
Operator
Ladies and gentlemen, we have reached the end of our question-and-answer session. I would like to turn the call back over to Jonathan for closing remarks.
Jonathan S. Halkyard -- President, Chief Executive Officer
Thank you. Thanks everybody for joining us this morning. We look forward to seeing many of you as we engage in some Investor Relations events in the coming weeks and otherwise, we look forward to speaking with you in late April to talk about our first quarter results. Thanks everyone.
Operator
Thank you. This concludes today's conference. You may disconnect your lines at this time and thank you for your participation.
Duration: 50 minutes
Call participants:
Robert Ballew -- Vice President of Investor Relations
Jonathan S. Halkyard -- President, Chief Executive Officer
Brian Nicholson -- Chief Financial Officer
Harry Curtis -- Instinet -- Analyst
Anthony Powell -- Barclays -- Analyst
Chris Woronka -- Deutsche Bank -- Analyst
Smedes Rose -- Citigroup Inc -- Analyst
Chad Beynon -- Macquarie Group -- Analyst
Michael Bellisario -- Robert W Baird -- Analyst
Omer Sander -- JP Morgan -- Analyst
David Katz -- Jefferies -- Analyst
Stephen Grambling -- Goldman Sachs -- Analyst
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