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Extended Stay America Inc (NASDAQ:STAY)
Q3 2019 Earnings Call
Nov 8, 2019, 2:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Thank you for standing by. This is the conference operator. Welcome to the Extended Stay America's Third Quarter 2019 Earnings Conference Call. [Operator Instructions]

After the presentation, there will be an opportunity to ask questions. [Operator Instructions]

I would now like to turn the conference over to Rob Ballew, Vice President, Investor Relations. Please go ahead.

Rob Ballew -- Vice President Investor Relations

Good morning and welcome to Extended Stay America's third quarter 2019 conference call. Both the third 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 are 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 would like to remind you, 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 23 of 2019.

In addition, on today's call we will reference certain non-GAAP measures. More information regarding these non-GAAP measures, including reconciliations with comparable GAAP measures are included in the earnings release and Form 10-Q filed yesterday evening with the SEC. With that I will turn it over to Jonathan.

Jonathan Halkyard -- Chief Executive Officer

Thanks, Rob and good morning everyone. Thank you for joining us this morning to discuss our third quarter 2019 results. Before we begin, I'd like to thank my 8,000 colleagues out in the field for their hard work this quarter. When you run at greater than 80% occupancy, like we do in high season and so many of your guests see your business like a home away from home as ours do. It takes a special team to make each hotel work. That our associates can do this day in and day out and are still engage that they give our Company a 4.0 rating on Glassdoor among the highest in the industry The things that makes me so proud to work here with my colleagues. We accomplished a lot this quarter. During the third quarter this team managed through a challenging top line environment by fortifying our relationships with our core extended-stay guests. We built on our recent momentum with the franchise community, now boasting a pipeline equal to 14% of our room base nearly double the level a year ago. Our owned hotel development is at full steam with our first hotel opening next month and then about one per month through most of 2020.,

We've strengthened our balance sheet with a highly successful bond offering in September and just increased our capital return guidance to return more than 10% of our market capitalization to our shareholders this year. I'd like to spend a few minutes on each of these items in turn. As we all know, the third quarter saw a continuation of the softness that the industry began experiencing in June. And in fact the decline accelerated in September even after adjusting for holiday shifts. Comparable systemwide RevPAR growth during the third quarter for ESA declined 1.3% including a 2.7% decline during the month of September.

Now, after adjusting for unusual items in the third quarter, such as cycling hurricane business in Houston and Florida and renovation disruption, RevPAR during the third quarter declined 0.5% for ESA. We remain focused on driving demand from our core extended-stay guests, business travelers with stays ranging from a week to a couple of months, which we believe is a bit more consistent than transient business and for whom we have a clear value proposition.

It was because of these efforts that we achieved record occupancy for the company this quarter and the strength of our 30 plus day length of stay customers will help us as we go into the shoulder season, and Brian will provide more color on the RevPAR challenges that we and our chain scales have seen in recent months.

Our adjusted EBITDA during the quarter finished at $156.3 million. Hotel operating margins remain challenging with labor costs, property taxes and property insurance rising at this stage of the cycle although the pace of that growth was lower this quarter than we saw in the first half of 2019. We remain committed to controlling expense growth, including investments to reduce utility costs as well as keeping tight controls on overtime hours and always working to reduce turnover. Historically low unemployment rates are a sign of the healthy economy in our republic, but it also makes it difficult for businesses to attract and retain great employees, this is why we have invested so much time in building our Company's recruiting programs and culture. Our turnover among general managers and district managers is down 8 to 10 points in the last year and still coming down. This is a lean operating model. All of our hotel direct costs, other than the labor totaled less than $16 per occupied room and those were up about 2% versus the third quarter of 2018, one reason our hotel adjusted EBITDA margins lead the industry at nearly 54%. And along those lines, our adjusted corporate overhead expense for the first 9 months of 2019 is down more than 3% despite continuing to build out a development and franchise team.

But holding the line on costs is not enough in times like these, not for me at least nor is beating our comp set as we did this past quarter, and we have for all of '19. I and ESA's management team are committed to improving the Company's performance continually. The good news is that when you own an operator system as large as ours in every major market in the US, you don't have to look very far for the keys to success. We understand what a great extended stay hotel looks like and we segment the performance of our hotels ruthlessly against one another. When our hotels are fully staffed, when they follow our revolutionary but simple Kai [Phonetic] ESA workflow and have a solid base of core extended stay business, they operated RevPAR index levels 15 points above our Company average.

Dozens do this in every market and it's our sole operational objective to bring every hotel owned and franchised to this standard of performance. Our hotels must deliver on this or they can't bear our flag, it's simply a matter of getting the fundamentals right every time and we believe that starts with culture and stable leadership in our hotels. Demand generation is also critical in times like these. Our corporate sales team is wholly dedicated to our core guests and the companies they work for. In recognition of that effort, Business Travel News 2019 survey of corporate travel managers gave our sales team their highest score on record with a total rating up 19% from just two years ago.

Our overall brand score improved as well and we finished second among corporate travel manager survey this year for overall brand perception in the mid-price extended stay category, outpacing competitors with much higher average nightly rates. Supporting our corporate sales team, we recently opened a new call center in Bogota Colombia to increase our bandwidth and making and extending reservations over the phone, which we believe will provide a better experience for guests calling to make reservation and ultimately lead to higher Higher sales generation. Our franchising efforts continue to move forward; during the third quarter, we grew our franchise pipeline by 12% to approximately 7,100 rooms. Combined with the ESA owned pipeline, our total pipeline is approximately 14% of our existing base. Roughly 75% of our pipeline comes from more than 15 current and future franchisees. Our total pipeline has grown 35% so far this year.

Our Company-owned pipeline has remained steady as we believe we have enough land and construction to account for our target growth for 2019 and '20. We expect to open our first purpose-built ESA hotel this quarter. Importantly, our construction costs for these first few projects are coming in line or below our expectations of $75,000 per key [Phonetic] . This is critical for both our own development as well as franchisee development as we continue to prove out the economics to a wider audience. We have assured our shareholders that we would be opportunistic and only opportunistic with acquisitions and conversions. Accordingly, next week we will close on and convert a hotel in a growing Florida market that we had already targeted, the acquisition price for this hotel is less than it is to build a new site and is already near stabilization. I mean, there will not be a long lead time to begin generating a nice return for our shareholders.

We are not alone in this. Next week one of our franchisees will convert another hotel this one in Katy, Texas. There will be more conversions by our franchisees in 2020. We do not have asset sales to announce this quarter but as we mentioned on our last quarterly call, we are completing an updated review of our portfolio and our disposition strategy as requested by our Board and we have made substantial progress. We look forward to executing on that strategy and outlining the strategy to our investors soon. We note that interest from prospective buyers remains high and the financing conditions for buyers remain strong.

We continue to evaluate the size and scope of our renovation program in conjunction with our ESA brand review and other capital investment options. We expect to provide a fulsome update on our renovation program on our fourth quarter 2019 call in late February. And finally, as I mentioned on our last call, this has been a year of technology innovation for ESA. We have installed our new property management system in 96% of our hotels and will be complete by the end of this month, 86% of our hotels have had their TV cabling upgraded this year and the rest will be completed this month and next. We've upgraded Wi-Fi bandwidth in every one of our hotels, a critical advantage and revenue generator for our core guests Next step is a complete revamp of our B2C and B2B CRM system, a technology, which I am particularly excited about and that will drastically improve the sophistication with which we market to our core guests. The good news is that the lion's share of the capital investment for these technology investments are behind us and we and our customers are poised to benefit from them in 2020 and beyond. We will continue to update you periodically on these efforts. Our financial position is in the best shape this company has been in since I joined in 2013. With our recent refinancing in the third quarter we have approximately $500 million in cash on the balance sheet, no maturities for roughly 6 years and a weighted average cost of debt, well below our current dividend yield.

Combined that with what we believe our strong opportunities to sell assets at attractive free cash flow multiples in the coming quarters and our industry leading margins and we know we're very well positioned going forward. We've repurchased 6 million paired shares since our last earnings call retiring more than 3% of our float in just 3 months and have reduced our share count by 11% since 2016. We still have nearly $180 million in authorization left as of this morning and we continue to be active repurchases of our stock at these levels.

For the second time as many quarters, we've increased our capital returns outlet for 2019 despite having only four and a half months to repurchase shares this year. Counting our dividend yield of more than 6%, we are on track to return in excess of 10% of our current market cap to shareholders this year. I'll now turn over the call to Brian to discuss our third quarter financial results in detail and our updated 2019 outlook, Brian?

Brian Nicholson -- Chief Financial Officer

Thank you, Jonathan. Before getting into our operating results, I think it's important to review briefly our financial policy and some of our recent accomplishments. In recent years, our goal has been to strengthen our financial position on several key fronts. Operationally, we continue to look for ways to defend and grow revenue, control costs and grow our asset light revenue streams. On the balance sheet, we've strived to de-level the company while maintaining a flexible capital structure, extending maturities at attractive rates and continuing to fix rates opportunistically.

Our capital allocations and priorities focus on pruning the portfolio of lower ROIC and free cash flow hotels to provide capital to be recycled into aggressive share buybacks and capital investments with strong returns, all well paying a healthy dividend. We're proud of the progress we've made on all of these fronts. Since our IPO 6 years ago we've reduced our leverage by more than a turn [Phonetic] . We sold more than 100 hotels at attractive multiples and have returned roughly 50% of our current market cap to our shareholders through dividends and share Repurchases. We've extended maturities and transitioned from a covenant heavy CMBS based capital structure to a more flexible bank and bond debt structure. Looking to our quarterly results, our third quarter revenue environment was challenging with an especially weak September, comparable systemwide RevPAR decreased to 1.3% in the third quarter. But we beat our comp set by 30 basis points. The economy and mid-price chain scales, as well as our comp set all saw declines in RevPAR of more than 3% during September. Our comparable systemwide RevPAR decline was driven by a 2% decline in average daily rate or ADR, partially offset by a 70 basis point increase in our occupancy rate.

The decline was most pronounced among business transient and mid-length extended stays from property walk-in visits and a decline in global distribution system business. Partially offsetting this was a 1% increase in 30 plus night business and a slight increase in leisure travel. Excluding the impacts of hurricanes and renovation disruption, our comparable systemwide RevPAR would have declined approximately 0.5% in the third quarter. Absolute company owned RevPAR increased to 1.1% in the third quarter, reflecting the improved portfolio quality from asset dispositions.

For the first 9 months of 2019 comparable systemwide RevPAR declined to 0.9% which was impacted by approximately 0% from hurricane displacement business in 2018, as well as renovation activity in 2019. Hotel operating margin declined 170 basis points in the third quarter to 53.8%. The decrease in hotel operating margin was driven by increased payroll expenses, property taxes, property insurance and full year [Phonetic] charge offs expense as well as a decline in comparable RevPAR. Excluding the aforementioned expense items, same-store property expense increased a modest 1.5% as we focused on controlling costs throughout the organization.

Our overall rate of cost growth decelerated from the pace in the first half of 2019. For the first 9 months of 2019 hotel operating margin declined to 190 basis points due primarily to a 1.2% decline in comparable company owned RevPAR and increased payroll expenses. Corporate overhead expense excluding share-based compensation and transaction costs increased to 4.2% to 20.4 million during the third quarter due to $1.2 million in severance costs incurred during the quarter. For the first 9 months of 2019, corporate overhead expense excluding share-based comp and transaction costs declined 30.4 [Phonetic] % to... Despite a $2 million increase in severance expense. The year-to-date decrease in corporate overhead expense reflects cost synergies realized in the third and fourth quarters of 2018. Adjusted EBITDA in the third quarter was $156.3 million, adjusted EBITDA during the quarter was impacted by the loss contribution of approximately $6.8 million from hotel dispositions in 2018, a decline in comparable systemwide RevPAR and an increase in comparable hotel operating expenses as well as the aforementioned $1.2 million on unanticipated severance expense during the quarter.

Adjusted EBITDA for the first 9 months of 2019 was $426.3 million reflecting lost contribution of approximately 20.5 million from hotel dispositions in 2018, an increase in comparable hotel operating expenses and a decline in comparable systemwide RevPAR. Interest expense during the quarter increased by $5.5 million to $36.5 million due to approximately $6.7 million in debt extinguishment costs related to our refinancing completed during the third quarter excluding this cost interest expense declined by $1.2 million. During the third quarter, we issued 8-year notes at very attractive fixed rates and paid down a portion as well as extended the maturity for our term loan by three years. For the first 9 months of 2019, interest expense increased by $0.8 million to $95.9 million. Excluding transaction costs in the current and prior year quarter, interest expense year-to-date declined by $4.3 million. Income taxes during the quarter declined $4.5 million to $10.5 million driven by lower pre-tax income. Income taxes for the first 9 months of 2019 declined by $7.4 million to $27.8 million driven by a decrease in pre-tax income and a slight decrease in our effective tax rate.

Adjusted FFO per diluted paired share declined 11.5% in the third quarter to $0.54 -- compared to $0.61 in the same period in 2018. The decline was driven by an increase in comparable hotel operating expenses and a decline in comparable company owned RevPAR, partially offset by a decline in income tax expense. Adjusted FFO per diluted paired share for the first 9 months of 2019 decreased 10.6% to $1.43 driven by an increase in comparable hotel operating expenses and a 1.2% decline in comparable company-owned hotel RevPAR, partially offset by a decrease in income tax expense.

Net income during the third quarter decreased 29.7% to $52.3 million. The decline in net income during the quarter was driven by a decline in comparable systemwide RevPAR, an increase in comparable hotel operating expenses, $6.7 million in interest expense related to the third quarter financing transactions as well as non-cash impairment expenses of $2.7 million, partially offset by a decrease in depreciation and income tax expense. Net income for the first 9 months of 2019 declined 18% driven by a decline in comparable systemwide RevPAR, an increase in comparable hotel operating expense, cycling a gain on asset sales in 2018 and partially offset by lower impairment expense and lower income tax expense.

Adjusted paired Share income per diluted paired Share in the third quarter decreased to $0.33 per diluted paired Share from $0.39 in the same period as last year. The decrease was due primarily to an increase in comparable hotel operating expenses and a decline in comparable systemwide RevPAR, partially offset by a decrease in depreciation expense and income tax expense. For the first 9 months of 2019 adjusted paired Share income per diluted paired Share decreased to $0.81 compared to $0.94 in the same period of 2018.

We ended the third quarter with our net debt to trailing 12 month adjusted EBITDA on a pro forma 554 hotel basis at 4.0 times, a slight increase due to the decline in adjusted EBITDA and a heavy pace of paired Share repurchases. After these latest debt transactions, we have no maturities until 2025 and more than 80% of our debt is fixed at attractive rates with a weighted average cost of debt at 4.75%. Our total cash balance was just above $500 million at the end of the quarter. Gross debt outstanding was $2.69 billion. Capital expenditures in the third quarter were $65.1 million including $10.2 million for renovation capital, $20.2 million for development, land acquisitions and other ESA 2.0 costs and $10.9 million in IT capital.

Capital expenditures for the first 9 months of 2019 totaled $178 million including $69.9 million for maintenance capital with an insurable events of $9.3 million as well as $34.3 million for renovations. We completed 12 hotel renovations in the first 9 months of 2019 and expect to complete 4 more during the fourth quarter. Our own balance sheet development pipeline at the end of the third quarter stood at 19 hotels, while our franchise pipeline grew during the quarter to 58 hotels. We expect to purchase and convert one Extended Stay Hotel During the fourth quarter and expect a handful of franchise conversions over the next few months. As Jonathan mentioned earlier, our total pipeline has grown 35% so far in 2019. Yesterday the Boards of Directors of Extended Stay America Incorporated and ESH Hospitality Incorporated declared a combined cash dividend of $0.23 per paired Share payable on December 4, 2019 to shareholders of record as of November 20, 2019. Our dividend yield is now approximately 6.4% of recent trading prices, which is significantly higher than our weighted average and our marginal cost of debt.

During the third quarter, we repurchased 4 million paired Shares for approximately $57.5 million. Since the end of the quarter, we have repurchased an additional 2 million paired Shares for an approximately $28.7 million, meaning we have retired more than 3% of our diluted share count in the last 90 days. Our current total outstanding remaining availability for paired Share repurchase is approximately $177 million. We expect to remain very active repurchasers at current trading levels. Looking to the fourth quarter of 2019, we expect comparable systemwide RevPAR growth will be between negative 4.5% to negative 2% reflecting the recent RevPAR trends in our chain scale and comp set. This includes a 75 to 100 negative basis point impact from renovations, as well as cycling a similar level of impact from the Boston area as we cycle over gas explosion business in the fourth quarter of 2018.

We expect adjusted EBITDA between $109 million and $119 million during the fourth quarter. For the full year 2019, we update our guidance as follows: We expect comparable systemwide RevPAR growth of minus 1.75% to minus 1.25% and adjusted EBITDA between $535 million and $545 million reflecting the lower than expected industry and chain scale RevPARs in 2019. The adjusted EBITDA totals includes lost contribution of approximately $21 million from assets sold in 2018. We are lowering our expectation for capital expenditures in 2019 at the midpoint by an additional $40 million and expect to be between $235 million and $275 million which is an $80 million decrease from our initial guidance back in February.

The decrease in expected capital expenditures from our August guidance is driven by lower capital expenditures for renovations, as we continue to review the size, scope and returns associated with this program compared to other capital investment options, including capital returns to shareholders. The expected Provide an update on our renovation program in our fourth quarter earnings call. We expect our annual interest expense to be approximately $129 million, an increase from our prior guidance due primarily to transaction costs incurred during the third quarter. We expect adjusted paired Share income per diluted paired Share between $0.93 and $1.01 per paired Share. Through our dividend and paired Share repurchases we now expect to return between $285 million and $315 million this year to our shareholders, reflecting higher share repurchase activity and lower capital expenditures, representing roughly 11% to 12% of our recent market capitalization among the highest capital returns as a percentage of market cap in the lodging and adjacent spaces.

Operator. Let's now go to questions.

Questions and Answers:

Operator

Thank you. Before we begin the question-and-answer session, please limit yourselves to one question and one follow-up question to allow everyone in the queue a chance to ask.[Operator Instructions]

Our first question comes from Harry Curtis of Instinet.

Harry Curtis -- Instinet -- Analyst

Good morning, everyone. Two quick questions please. The first is, if you look at the hotels that have been renovated in the last 6 to 12 months, how are they performing relative to the comp set and your expectations?

Brian Nicholson -- Chief Financial Officer

Hi Harry.Good morning, this is Brian. On the hotels that have been renovated sort of as we referenced in the call, I hesitate to express too much enthusiasm or report anything on the performance because the number of hotels that have reached stabilization at this point are really limited and really limited number of observations. I would say on the renovation program, we are sort of in a pause and evaluate stage part of that is driven frankly by the fact that we have been renovating to 4 tiers and we're getting feedback that some of our guests might be a little confused as to what the differences between the tiers are especially when you're making booking decisions based on relatively small pictures on our website, you might not notice all the differences between the tiers and so we are looking at how we might be able to consolidate, simplify for guests' decision making and frankly to make our sales process more efficient.

Harry Curtis -- Instinet -- Analyst

Yeah, where I was going with this obviously is when we look ahead to 2020 is there

I'm trying to get a sense of how much renovation capex, you're likely to spend in 2020 versus 2019 as it -- as we look, look ahead to further cash available for repurchases.

Brian Nicholson -- Chief Financial Officer

Yeah, Harry. We've guided to about a 7th of the portfolio getting a renovation per year over about a 7-year period, while we are not in a place to issue guidance on 2020, yet, I would note that we're going to be in -- it's evaluation mode until probably late first quarter next year and then there's a permitting process. Yeah, at best I think we would get to about half of a normal number of years or a normal number of hotels within the renovation cycle in 2020.

Harry Curtis -- Instinet -- Analyst

Okay, very good. And then moving on to the second question, which is, the group of hotels that you have yet to sell, is that number still rough, is it sort of still 65 to 75 and again, as we look into 2020, might that number increase, particularly given the huge gap between what you're able to sell hotels for versus the 9 multiple that your stock trades out today.

Jonathan Halkyard -- Chief Executive Officer

Harry, it's Jonathan. Good morning. We -- A few years ago when we introduced our growth strategy, we did outline that we did -- we saw a pathway to selling 150 hotels over a 5-year period, we are now just over three years into that 5-year period and we've sold about 75 hotels. So despite the fact that we haven't executed asset sales this year for a few reasons earlier because of the process we have been going through, and more recently, our Board has asked us to evaluate that pool of assets we are looking to sell. I think we're still basically on track with that initial plan.

That being said, we -- as we noted in our prepared remarks, the -- we believe the market for purchasing our hotels remains very strong, some of that market is represented by our existing franchisees, all of whom we believe -- they are performing very well, are very happy with their acquisition at Extended Stay America assets. So we're very confident that we can continue to sell our assets at valuation, similar to the ones we have in the past. I think, you know, the makeup of that remaining group of 66[Phonetic] , 65, it's probably closer to 75 of 80 hotels is the bid influx right now as we go through this process, but it certainly could grow from that number now whether or not we would execute all of that in 2020, I think time will tell but, but we're still very comfortable about the market... And for these assets and it's an important part of the Company's strategy.

Harry Curtis -- Instinet -- Analyst

Yeah, I guess, where I was going is, what is your sense of the -- Boards sense of not necessarily urgency but priority in recognizing this arbitrage between the value of your stock, and the value of your hotels and did they share the same sense of urgency that many of your shareholders do? Thank you.

Jonathan Halkyard -- Chief Executive Officer

I really can't speak for the Board on this point, but I would add that our repurchase activity this year has, and I expect for the next several months, will not be constrained by our asset sales activities. We had $500 million of cash in our balance sheet by the -- at the end of the third quarter, we've repurchased 6 million shares as of yesterday, we have another -- at today's prices we have outstanding authority to purchase an additional 12 million shares. So this is without any additional asset sales. So while the two are related as you know in terms of the nice arbitrage that's available for our shareholders. They are not related in the sense that our ability to repurchase shares right now is not constrained by the Company's liquidity, we don't require additional asset sales to be active in the market.

Harry Curtis -- Instinet -- Analyst

Thank you, Jonathan.

Jonathan Halkyard -- Chief Executive Officer

All right. Thanks, Harry.

Operator

Our next question comes from Chad Beynon of Macquarie.

Chad Beynon -- Macquarie -- Analyst

Good morning. Thanks to take my question. i know you answered [Indecipherable] through the 2020 budgeting process and Brian, you mentioned the number of renovations are still under review, so this may be tough to answer, but as you look forward to 2020 at least right now with the kind of the current renovations and all the puts and takes, could you give us a sense of what you will be facing just in terms of potential headwinds in 2020 versus the industry, and I believe most prognostic headers have projected a some 1% RevPAR for 2020, so not the year you are willing to give something now? Just trying to figure out how you could fair against that? Thanks.

Brian Nicholson -- Chief Financial Officer

Thanks, Chad. I appreciate the question. As, again, you're right. This is tricky to comment on because -- it is our preference to provide full-some guidance in the first quarter when it's basically already forprime time [Phonetic] . But to your point, yeah and sort of as I alluded to earlier, we do have a number of hotels that have undergone renovation or will undergo renovation or in the process of renovation

Right now, it's not the number of hotels that we would expect to get to, on a run rate basis each year, when the renovation program is sort of fully vetted out, but there are still dozens of hotels that either have recently been renovated or the renovation is being completed and we would expect that renovation activity at least for the first half of next year will be virtually non-existent. And so, we will get the tailwind of renovated hotels without the headwind of displacement at least in the first half of 2020 and then beyond that, I think I would say, we'll be able to gauge the scope of all those factors more effectively for you when we provide our guidance for 2020.

Chad Beynon -- Macquarie -- Analyst

Okay, thank you. And then regarding the September weakness, you said it was mainly in the business transition and mid-length [Phonetic] stay, was this a consistent theme across the country in your portfolio or was it in certain pockets of the country that could maybe give you the confidence that it's more transitory in a couple of markets. Thanks.

Brian Nicholson -- Chief Financial Officer

Yeah, it's a good question, I would say that it was fairly broad-based, looking at the segments that contributed to the decline, especially in the the middle length of stay, the 7 to 29 night guests, certainly there were some segments that are higher represented in some markets than others, but generally speaking, I think the underlying drivers that we saw are more broad-based than geographically restricted.

Yeah. I would also comment here, we mentioned that September was weaker than the quarter as a whole. October has been a rough month for economy and for mid-scale. The STR data for the month of October has not yet been made available to us, but we do get daily data and so just looking at our comparable comp set and accumulating the days, October 1 through the 31st this year versus last year, it was a tough month, we were down 3.8% but we beat our comp set by about 70 basis points and the -- our ability to beat our comp set is strengthening as we continue to build the 30 plus based book of business and continue to migrate hotels more toward that true extended stay business that we are really uniquely positioned to serve.

Looking to our guidance for the quarter. I know that that was probably a little bit of a shock to some folks given what's going on externally and part of that is conservatism on our part. We missed our guidance slightly this quarter. I have no intention of doing that again, but I don't like it a bit and so we want to derisk the guidance somewhat and frankly as even looking at October, November, so far we have reason to believe that we're through the worst of it, the first few weeks of October was tougher than the last week of October; the first week of November, our booking pace and the way that the booking pace is evolving as we move through time, are all still not rosy [Phonetic] but certainly improving as we move through time week to week and day to day.

Chad Beynon -- Macquarie -- Analyst

I appreciate the color. Thank you very much.

Operator

Our next question comes from Michael Bellisario of Baird.

Michael Bellisario -- Baird -- Baird

Good morning, everyone.

Brian Nicholson -- Chief Financial Officer

Good morning, Mike.

Michael Bellisario -- Baird -- Baird

Could you go back to your comments on the asset sales in the lower-tiered hotels. I think you laid out 3 options last call and the comments you made, are you still evaluating all 3 options or have you decided on one and now you're digging deeper into that one option and looking to pursue that one, or are you still in the early stages of looking at all 3?

Jonathan Halkyard -- Chief Executive Officer

Well, certainly not, I'll make a couple of comments. Mike and then I'll invite Brian to comment as well. We're certainly not in the early stages. We're in the latter stages of that and by the 3 options I think you are talking about, I mean, selling and refranchising and selling unencumbered or retaining these hotels and so we -- we are doing the work on that and as I and I've hinted [Phonetic] at this in response to Harry's question at the top of our Q&A session, which is that it's the makeup of these assets that we're selling and which I would say is more -- it's going to be more informed by brand considerations at this stage in the game, then necessarily by market considerations. And so we're close to the end, but we still need to cover some of these conclusions internally and with our Board of Directors.

Michael Bellisario -- Baird -- Baird

Got it. -- that's helpful.

Brian Nicholson -- Chief Financial Officer

-- The decision is not necessarily, I don't know what the analog for 3 relative to binary, it is trinary. We don't necessarily have to pick one strategy for each of these -- for this set of hotels. There may be some hotels that we sell and franchise back as USA's, there may be hotels that we sell some other way potentially unencumbered. So yeah, again, it's as Jonathan As I mentioned, it's related to brand considerations and it's really about positioning our portfolio for optimal success going forward and getting optimal value for shareholders in the transaction process.

Michael Bellisario -- Baird -- Baird

-- that's fair to assume, still fluid but making progress. Correct?

Jonathan Halkyard -- Chief Executive Officer

Absolutely, yes.

Michael Bellisario -- Baird -- Baird

Got it. And then just second question, can you maybe update us on the franchise sales hiring process, how many people have been hired so far and have you seen any change in pace of signings since the Board concluded its strategic review, plus or minus 90 days ago?

Jonathan Halkyard -- Chief Executive Officer

We have begun expanding the franchise team and it wasn't just in franchise sales but actually more importantly at this stage in the game franchise services as we build up that internal team to serve a growing franchisee base and the pace is as we described it in our prepared remarks, that we've grown that pipeline, I think nicely and we would expect that to continue and accelerate as we get into 2020.

Operator

Our next question comes from Stephen Grambling of Goldman Sachs.

Jonathan Halkyard -- Chief Executive Officer

Thanks for taking the question, I guess a couple of quick follow-ups, first just sticking with the asset sales, are there any gating factors on selling assets quicker or expanding the base that you're targeting either, as it relates to tax basis or a need to keep a manager franchise agreement?

Unidentified Speaker

No.

Stephen Grambling -- Goldman Sachs -- Analyst

Okay. And then from your commentary on medium length stays, what is driving that pressure in your view. Are you seeing any change in the competitive environment that might be affecting your properties.

Jonathan Halkyard -- Chief Executive Officer

No, we don't see any change in the competitive environment you know, this business, this is very good business for us, it is priced well and yet because it's greater than a week, it -- we only incur the weekly housekeeping expense and not as much check in and check out as you would in transient business. So we really like this segment but it does tend to be very project driven, and so they -- this requires our sales force in the field, knowing what projects are going on, which ones are coming and it's really crappy [Phonetic] sales at the field level. We do that very well, but there is some ups and downs to it, there is no sign that I see that we're losing market share in This area, as Brian noted there are, there is really no geographic concentration to it, but there are certain areas that get impacted or got impacted a little bit more in this quarter than in the future, but this is an important business for it -- for us this length of stay segment, we're very focused on it, and I'm not concerned about any sustained weakness in it. It's a customer that for whom our product is ideally suited and where we don't see a lot of supply coming into our market

Stephen Grambling -- Goldman Sachs -- Analyst

Fair enough. And one last one, does the reaction to the stock following last quarter and what's continued make either you or the Board reconsider any alternatives that were previously on the table and maybe holistically is -- are there other things that you're thinking about to unlock value from a corporate standpoint.

Jonathan Halkyard -- Chief Executive Officer

Well, that's certainly a Board question and I know the Board will consider any and all options as they always have for the creation of shareholder value. As far as the management team last-- last quarter when we announced our earnings and the conclusion of that process we announced at the same time, an increase in our share repurchase authorization, which the Board supported enthusiastically and we've been hard at work -- working down that authorization as we noted this morning. So, I would also note that each of the 3 of us talking on the call this morning, are all purchased stock in this company during the third quarter. And so we're committed and we are -- we're confident in this company's ability to continue to perform and I think our actions repurchasing shares for the company and for our own personal account speak to that.

Stephen Grambling -- Goldman Sachs -- Analyst

Thanks so much.

Operator

Our next question comes from Chris Woronka of Deutsche Bank.

Chris Woronka -- Deutsche Bank -- Analyst

Hey, good morning guys. I wanted to dive back into the ,I guess the different buckets of customers for a second. So, understanding that the longer-term stays have lower ADR, but higher margins. I guess if that strategy were to continue, if you continue to kind of bulk up on the longer-term stays, is that ultimately going to reduce some of the margin pressure even though the rates are a little bit lower?

Jonathan Halkyard -- Chief Executive Officer

Thanks for your question. Yes, to some extent **Part 21**

Remixing to 30 plus business what released [Phonetic] we leave some of the margin pressure, as Jonathan alluded to longer stays mean less frequent housekeeping, a little bit less activity check-in, check-out activity at the desk. In terms of the desk, there is -- for a lot of properties were basically in a a station fill sort of environment where you can add a little or take away a little bit. That doesn't mean that you're going to leave the desk alone for 1 hour, 1.5 hour a day you have to have that station filled, but especially on housekeeping as you remix the hotel, you don't necessarily use as many housekeeping hours and that does relieve some of that pressure.

Some of these items property tax, property insurance -- the mix of the hotel and the way you operate the hotel, it really doesn't matter, at least in the short term, but I think there is good news, at least on the property insurance front that there has not been significant claims in our markets here over the last couple of years and we would expect to see some of that pressure abate as we move forward.

Chris Woronka -- Deutsche Bank -- Analyst

Okay, that's helpful. And then, I wanted to the kind of revisit the I know last quarter you had talked about the potential for almost, I guess, Quasi Residential brand and whether that might be for some of your owned hotels to kind of rebrand or for you to kind of sell hotels, unencumbered and refranchised them in more of a residential format. Can you give us maybe an update on that? How many hotels might fall into that broader bucket of going more strictly residential?

Brian Nicholson -- Chief Financial Officer

Yeah, Chris, I'll give you an idea, but, I want to caveat this with the, as Jonathan noted that while we are toward the end of this evaluation process, there is still some work to be done internally and some work to be done at the Board level. But basically that -- and Jonathan alluded to this earlier as well. Protecting our brand is important and we have a number of hotels, frankly, that are well suited to serving a business driven extended stay demand mix. We have other hotels due to their situation within the market or due to some physical characteristics of the hotels themselves are likely better geared toward serving a more residential guest. And so this evaluation process is really about making sure that hotels are serving a brand mission.

We believe there could be 100, maybe more hotels that are really better for residential all the time than a mix of residential and business driven Extended Stay and again because of physical characteristics or where they are in the market. You're probably not going to have them completely full of business driven demand. So that's kind of where we are -- that's kind of what we're thinking. Yeah. So -- it's a not insignificant number of hotels that today are operating, really more serving a residential guest but we're sort of in something of the No Man's Land trying to support these hotels with corporate sales, trying to hold a brand standard that's the same as for other Extended Stay Hotels. And we think we may be more efficient, more profitable if we draw a brighter [Phonetic] line between the missions of these different assets.

Chris Woronka -- Deutsche Bank -- Analyst

Great. Thanks, Brian. Would you maybe be willing to share the relative performance of those hotels, if not a specific number just the relative performance of how they're doing versus the rest of the portfolio.

Brian Nicholson -- Chief Financial Officer

Yeah, I really hesitate to comment there because again on an asset-by-asset basis, I think there's still some final work to be done. I would say at a higher level that the hotels that we have identified as these hotels that are potentially more residential in nature tend to receive lower social media and other scores, especially from shorter term guests who tend to be there for more business reasons.

Jonathan Halkyard -- Chief Executive Officer

But I would add, I mean, financially they perform well, you know, they tend to run at slightly lower ADRs because they're longer-term guests with the margins, the margins are quite high and in many cases the capital investment required is lower because they don't get the -- they don't just get that frequent turn that are -- the hotels that are more balanced [Indecipherable].

Brian Nicholson -- Chief Financial Officer

So yes, that's absolutely fair to say.

Chris Woronka -- Deutsche Bank -- Analyst

Great, thanks.

Brian Nicholson -- Chief Financial Officer

So -- the hotels performed very well financially.

Chris Woronka -- Deutsche Bank -- Analyst

Okay.

Brian Nicholson -- Chief Financial Officer

The the concern here or the aim here is just to make sure that they are meeting the needs of the intended [Phonetic] guest mix optimally and are best suited for growth going forward.

Chris Woronka -- Deutsche Bank -- Analyst

Thanks guys.

Jonathan Halkyard -- Chief Executive Officer

Thanks.

Operator

Our next question comes from Thomas Allen of Morgan Stanley.

Thomas Allen -- Morgan Stanley -- Analyst

Hey, good morning. Can you just remind us how you're thinking about hotel openings in 2020, both on in owned and franchise basis, I think you said you expect to own approximately -- that you expect to open approximately one-owned hotel a month next year, but I just wanted to make sure I was hearing that. And then on the franchise side. Thank you.

Jonathan Halkyard -- Chief Executive Officer

Yeah, you did hear that correctly, we will open one in December. And then we have 7 or 8 under construction right now and we might have two that opened in one month and then we missed a month, but generally as we look at the schedule right now starting in December we're opening one every month through August or September. And that just accounts the ones that are currently under construction right now. As it relates to the franchisees, we have one hotel that we expect to open in the February time frame. The others are largely, I expect to come from conversions and the timing is a bit uncertain at this point. I mentioned one on the prepared remarks, it's going to be converted shortly by one of our franchisees and so, those will continue but really on the timeline of our franchisees, but they could come in a little bit more chunky fashion over the year.

Thomas Allen -- Morgan Stanley -- Analyst

So do you think there [Phonetic] will be similar ballpark of about 8, 9 next year or do you think it could or just you don't know?

Jonathan Halkyard -- Chief Executive Officer

I think it's going to be higher than that. Our franchisee open [Phonetic] it will be higher than that.

Thomas Allen -- Morgan Stanley -- Analyst

Okay. Helpful.

Jonathan Halkyard -- Chief Executive Officer

And then can you.

I was just going to say we just approved five additional conversions by one of our franchisees yesterday. So those will be done in the next several months, so I think it will be higher than our owned openings.

Thomas Allen -- Morgan Stanley -- Analyst

Okay, helpful. And then -- and your 10-Q has showed that there was one franchised hotel removed in July and another in August. What happened there?

Jonathan Halkyard -- Chief Executive Officer

A couple of different things, one was a hotel that was in Austin, we sold out for higher better use, it continued to be, to operate for a while, but now it's closed, so that it could be raised [Phonetic] and construction could start. And then the other was a similar situation in Denver, the Denver Tech property that had been operating but now it's being redeveloped in the multifamily.

Thomas Allen -- Morgan Stanley -- Analyst

Okay. So the properties you guys had sold it at good cap rates and we knew about from a couple of quarters ago. Makes sense. Cool, thank you.

Jonathan Halkyard -- Chief Executive Officer

Thanks.

Operator

Our next question comes from David Katz of Jefferies.

David Katz -- Jefferies -- Analyst

Hi, good morning, covered quite a bit of territory, but I just wanted to follow up on the franchise system we spend time thinking about what critical mass for a franchise system really is and this may be a point of open debate that it sounds like you might be having but where do you consider critical mass to be A system of franchised hotels, is it 100, 200, 500, 300

Jonathan Halkyard -- Chief Executive Officer

I think of it a bit differently, which is around momentum and at what point does the performance of these franchised hotels among Stay [Phonetic] a larger diverse franchise, the community, begin to win the day and the argument begins to carry itself so that franchisees begin to come to us and say, hey, we've got these 5 hotels, we'd like to convert to Extended Stay America and so on. And in that sense I believe we've already reached that momentum point. That folks are bringing us deals as much as we are going out and proposing them to our franchisees.

So that's one 1% [Phonetic] of critical mass that tend to be a tipping point, which I feel we've achieved already, but as it relates to the -- your question is still a very good one because there, in order to have a franchise services organization with some scale a QA function that makes sense, I think we probably need about double the number of franchisee hotels that we have right now. I also think that there is -- there is a capital market's question here and that the company in order to be a growing more asset light company does need to have some real scale among it's franchise income stream and clearly we're not there yet, but I think that we've got a line of sight to that and that's probably at least 150 or 200 or 300 hotels.

So that's a couple of ways that I think about it, David and but like you had mentioned at the beginning of your question, it's kind of a -- I think there could be different perspectives on that question. Yeah. And just as well.

Brian Nicholson -- Chief Financial Officer

I do have a slightly different perspective on that question, ESH Hospitality is essentially a franchise of 554 units right now. So unlike some other franchise systems that are getting off the ground, we do have decades of history of performance, we do have demonstrated ability to work in every market in this country, so I think that there are advantages, especially as it comes to franchise sales that other franchise systems, the size of our franchise system just don't have.

David Katz -- Jefferies -- Analyst

Right. And if I may just follow that up are there interim between you know something more absolute of selling to a much larger system and fighting the good fight which you obviously are doing quite well; are there are interim steps, where you could have an affiliation arrangement of some kind with a larger system to just established a little more deal flow loyalty system that's a little larger, derive some of the benefits from scale, obviously you have to pay for it, but are there any strategies in that range that could be discussed at any point?

Jonathan Halkyard -- Chief Executive Officer

Well, we certainly appreciate your recognition of our Company fighting that good fight and we certainly think we are, it's an interesting point, I think you know in terms of affiliations, it -- I could conceive certain partnerships around loyalty that could make sense at some point for the Company. I think with respect to brand and management, we believe that our brand is sufficiently unique and that the management required is also differentiated. It's hard for me to think of as you described interim strategies, but perhaps on loyalty and adding value to our loyalty program, that's -- I think there are possibilities there.

David Katz -- Jefferies -- Analyst

Just one follow-up comment about it, because it's been so prevalent and frankly we had some discussions this morning around loyalty and .com bookings and how the impact that's having on the OTA side of the business. Loyalty use is kind of up and off the charts, it sounds like some loyalty affiliation is something that you could consider at some point under the right circumstances, correct?

Jonathan Halkyard -- Chief Executive Officer

Yeah, under the -- kind of the menu of things you listed and as I think about that, our business, our advantages, as well as some of our competitive challenges, it's -- loyalty and adding value to our loyalty program and there are number of ways to do this which other operators, not just in lodging but in other spaces, have done this routinely. I couldn't conceive of certain partnerships that might help us increase the value of our loyalty program. Sure.

David Katz -- Jefferies -- Analyst

Perfect, thank you very much.

Jonathan Halkyard -- Chief Executive Officer

Okay, thanks.

Operator

Our next question comes from Shaun Kelley of Bank of America.

Shaun Kelley -- Bank of America -- Analyst

Hi guys, good morning. Thanks for squeezing me in. So just on two things for me. I mean one, obviously, it seems like a lot of what you're doing is sizing down some of the renovation program, redeploying some of that capital into the share buyback, but overall, because the numbers are coming down a little bit, it does seem like leverage is going to tick up a bit, just Jonathan or Brian, what are you comfortable with on, sort of your medium-term leverage target just given sort of the operating challenges that -- are somewhat beyond your control on the topline?

Brian Nicholson -- Chief Financial Officer

Hey Shaun it's Brian. I think, as Jonathan mentioned there is -- there might be a temptation to link a lot of these things that don't necessarily need to be linked the slowdown in renovation spend is not necessarily a function of -- or related to the accelerated share buybacks, etc. We do have the resources available to pursue these various objectives without success in one determining whether or not we could be successful or another.

That said, I think you correctly note that. Yeah. If we continue to see this environment where our RevPAR is sluggish and where there is some growth in some pretty important expenses. Yes, that could contribute to somewhat higher leverage. Yes, our interest coverage is very comfortable in terms of medium term versus long-term leverage targets, certainly, the Company has gotten itself in a place where we are far removed from what has caused trouble for this Company and for others in past downturns and past situations.

Jonathan Halkyard -- Chief Executive Officer

I would add one other thoughts Shaun which is that the financial risk that a company is willing to -- is able to bear is directly related to the business risk that it faces and our company has 550 owned hotels across the country, no hotel generates more than 1% of our revenue, every hotel is cash flow positive, so while we are always doing our best to drive revenue and control costs across the enterprise and in each hotel individually. The business risk in this Company is quite low and so as a result, we believe that we can put financial leverage on this business. And Brian Brian and his team did a fantastic job in placing that for the Company back in September and I think that demonstrates the -- this nice situation we have with respect to the Company's leverage and its business risks. So when we see opportunities like this to repurchase our shares, capture dividend yield in excess of our marginal cost of debt, I mean corporate finance 101 [Phonetic] as you go and you continue to do that.

And we can sustain -- an interim pickup and the financial leverage to accomplish that.

Shaun Kelley -- Bank of America -- Analyst

Got it. Great, thank you for the color. And then the other question, sort of, again, I appreciate you're sort of in the middle of the budgeting side, but I think last quarter you referred to capex on the new builds possibly also being a little lower, maybe over the medium term and you kind of -- had planned previously just given how good [Indecipherable] your eyes are turning out how much traction you had on the franchisee side, is that still the case and can you just give us a sort of a broad sense of kind of the cadence over the next two years on new build capex?

Brian Nicholson -- Chief Financial Officer

Sure. Shaun, it's certainly over the next year as Jonathan mentioned we have, let's call it 10 hotels teed up to open over the next 10 or 11 months. After we get past sort of that and going back to 2016, we had outlined something like 10 to 15 on balance sheet builds per year. As we move beyond say the next year year or two where we've already acquired the land and have some of these projects in flight, I think we do see that it is likely that the pace of our on-balance sheet development is somewhat lower than that 10 to 15, but that you would see that beginning in maybe 2021.

Jonathan Halkyard -- Chief Executive Officer

So these hotels that approximately $12 million all in capital costs per that [Phonetic] pace annually. There is $120 million $150 million. But as we get into 2021 that could come down a little bit.

Brian Nicholson -- Chief Financial Officer

That's right.

Shaun Kelley -- Bank of America -- Analyst

Thank you very much.

Brian Nicholson -- Chief Financial Officer

Thanks Shaun.

Operator

Our next question comes from Smedes Rose of Citi.

Unidentified Participant

Hi. I am Joseph [Indecipherable] for Smedes. The first question is, could you talk about what you've seen on the supply side for your properties and do you have a sense of what that looks like in 2020?

Jonathan Halkyard -- Chief Executive Officer

Yeah, hi, good morning. Yeah, in the economy chain we're looking at supply growth of about 40 to 50 basis points both this year and next year and what we have visibility of 2021 as well. The mid-scale, it's a little bit higher just over 1% [Phonetic] a lot of that new true supplied by [Indecipherable] that's coming online. So you kind of average those two together and we're looking at it roughly 70 to 80 basis points of supply growth over the next couple of years.

Brian Nicholson -- Chief Financial Officer

Real [Phonetic] supply growth is kind of hitting an upper mid scale and a Speaking in terms of chain scales. Upper mid scale is much more robust.

Unidentified Participant

Great. And then just another one. On the capital spending program are you scaling back on the scope of the per key renovations and upgrades or is it more of a timing issue?

Jonathan Halkyard -- Chief Executive Officer

Yeah. Again, maybe a little premature to speak to what [Technical Issues] that as we have mentioned that we may go from 4 renovation tiers to a lower number of tiers that may mean that on the [Indecipherable] hotels, get a little bit more on the top 10, some hotels that are slated for a lot are going to get a little less, but in terms of the overall cost of the the enterprise endeavor, I don't know that, I'm really in a position to say that it's going to be materially different at this point.

Unidentified Participant

Great, thanks.

Jonathan Halkyard -- Chief Executive Officer

Thank you.

Operator

Our final question comes from Anthony Powell of Barclays.

Anthony Powell -- Barclays -- Analyst

Hi, good morning guys. Just a follow up on the supply growth question, could some of these upper mid scale hotels that are kind of higher quality than the past product [Indecipherable] connected to the [Phonetic] brand. So they really be impacting your ability to get some short-term business in your hotels, when you don't have the long term stay?

Jonathan Halkyard -- Chief Executive Officer

If you're talking about the hotels in that price point, I would say no, I mean the upper -- did you say mid scale Anthony?

Anthony Powell -- Barclays -- Analyst

Upper mid scale. So I'd say it's true that may be able to price at $8 for [Indecipherable] customer or the customer may have in the past, who take your hotels occasionally, but now they're staying in these newer, newer brands that are opening up in the lower price points across the country?

Jonathan Halkyard -- Chief Executive Officer

Yeah, I don't, I don't think so. I mean, when I think about some of the upper mid scale competitors, they tend to be more kind of in that $110 to $150 range and that's --- that's going to be against $75 $80 per ADRs in our system, may be 90 generally. So I don't think so. And as we go around our system and speak with our operators and we're talking about the business, it's rare that a new competitive opening is affecting our business. It happens, but it's very rare compared with other businesses I've been in, that I've been involved with competitive entry is rarely a reason for what we're seeing in terms of any impact on our business.

Anthony Powell -- Barclays -- Analyst

Got. Thanks. And you've talked to this call on the last call about shifting some properties to more of a residential model. Have you changed your overall I guess TAM or system size expectations over the past couple of quarters, do you still expect to be able to grow to the same size eventually as you in franchisees build hotels?

Jonathan Halkyard -- Chief Executive Officer

Yes, I do. I certainly -- we certainly see the same market opportunity that we have for the past couple of years. I think the only area where my thinking has changed a little bit on that is that the opportunity for conversion is greater than we expected it to be. We really, we had looked at a few you conversions in the past and had chosen not to proceed with them, but as we look at them now as our franchisees look at them, that's a whole category of growth that we did not really assign much value to which we're very enthusiastic about.

And on the premise of the question Anthony, I would just suggest that we're not moving this business toward any kind of residential model or customer set, but there are certain of our hotels that have a bit more of that customer segment than others, and as we consider branding implications and the rest were trying to take that into account in a way that it's positive for shareholders.

Anthony Powell -- Barclays -- Analyst

Thanks. And just one follow up on that conversions, [Indecipherable] are great and then they are in place cash flow, [Indecipherable] I guess some brands confusing depending on how the hotels are configured, how do you manage that and when do you think you could see more franchise and new construction starts picking up across the system.

Jonathan Halkyard -- Chief Executive Officer

You're certainly correct, that I'd say that we have to be cautious about that brand confusion but all of the conversions that the few that we've done and the others that we have approved, they're all quite similar to our existing boxes, they all have kitchens and all the rooms. They don't have restaurants and they're approximately the same size, in fact, some of them even have already taken our color scheme. So that's -- our experience so far is that's not a large risk, one that we've had to turn down opportunities for, and we have a brand standards committee, which works with our franchisees to make sure that we are true to our brand.

Anthony Powell -- Barclays -- Analyst

Got it. And on the franchise and new construction side, when do you think there will be a bit more momentum there.

Jonathan Halkyard -- Chief Executive Officer

This this coming year, in 2020, but we're -- we'd like to see our franchisees of course continue with their new development. But we also, we like the conversion business as well. As you noted it's faster in place cash flow, but we'll have more in 2020 on the franchise new build side.

Anthony Powell -- Barclays -- Analyst

Great, thank you.

Jonathan Halkyard -- Chief Executive Officer

Thanks, Anthony.

Operator

This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Halkyard for any closing remarks.

Jonathan Halkyard -- Chief Executive Officer

Thank you. I would just like to thank everybody for joining us this morning and -- for your support of our company. Enjoy the rest of your week and we'll look forward to speaking to you in the coming weeks, if we have meetings with you and if not, during our fourth quarter 2019 call in February. Thanks everybody.

Operator

[Operator Closing Remarks]

Duration: 75 minutes

Call participants:

Rob Ballew -- Vice President Investor Relations

Jonathan Halkyard -- Chief Executive Officer

Brian Nicholson -- Chief Financial Officer

Unidentified Speaker

Harry Curtis -- Instinet -- Analyst

Chad Beynon -- Macquarie -- Analyst

Michael Bellisario -- Baird -- Baird

Stephen Grambling -- Goldman Sachs -- Analyst

Chris Woronka -- Deutsche Bank -- Analyst

Thomas Allen -- Morgan Stanley -- Analyst

David Katz -- Jefferies -- Analyst

Shaun Kelley -- Bank of America -- Analyst

Unidentified Participant

Anthony Powell -- Barclays -- Analyst

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