Q3 2020 Chatham Lodging Trust Earnings Call

October 29, 2020

[music].

Greetings and welcome to they try them lodging Trust third quarter 2020 financial results Conference call. At this time, all participants are listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press.

Star Zero on your telephone keypad as a reminder, this conference is being recorded I would now like to turn this conference over to your host Mr., Chris Daly President of DG Public relations. Thank you you may begin.

Thank you Laura good.

Good morning, everyone welcome to the Chatham Lodging Trust third quarter 2020 results conference call. Please.

Please note that many of our comments today are considered forward looking statements as defined by federal Federal Securities laws. These statements are subject to risks and uncertainties, both known and unknown as described in our most <unk>. Most recent form 10-K and other SEC filings all.

All information in this call is as of October 29, 2020, unless otherwise noted and the company undertakes no obligation to update any forward looking statements to conform the statement to actual results or changes in the company's expectations. You can find copies of our SEC filings and earnings release, which contain reconciliations to non-GAAP financial measures referenced on this call.

Oh, well the website at Chatham lodging Trust Dot com.

Now to provide you some insight into chathams 2023rd quarter results allow me to introduce Jeff Fisher, Chairman, President and Chief Executive Officer, Dennis Craven Executive Vice President and Chief operating Officer, and Jeremy Wegner, Senior Vice President and Chief Financial Officer, what drove the session over to Jeff Fisher Jeff.

Thanks, Chris Good morning, everyone first and foremost thank you for your interest in Chatham and we sincerely appreciate your participation done these unusual times the cold. It 19 pandemic has been one of the most destructive events to the global or national economy in history and its impact on the line.

Switching industry is unprecedented.

But all things considered I'm very pleased with our current results and the extra ordinary work our team has done during this difficult time.

For the quarter, our Revpar declined 61% to $58 well above our second quarter Revpar $33 since the beginning of the summer we saw revpar gradually improve in the summer from $45 in June to 52 in July and to approximately $60 in August.

Timber and October.

The improving trend can be attributable to the leisure traveler, who came out enforced during the summer we did see some return of corporate travel, but it remains quite limited and at rates more in line with our overall portfolio AG ours since.

Since the beginning of August our occupancy has hovered around 55% and our <unk> Aer has remained around $110.

Although other soft performance decline in September and October we've been able to maintain our operating performance.

As I said.

This unprecedented period has required intense asset management and operating focus and I'm very proud of the efforts of our teams at both Chatham an island hospitality, we had the highest absolute revpar of all lodging Reits in the second quarter and I'm confident that our third quarter Revpar will be near the top addition.

Finally, we delivered GLP margins of 36% in the quarter. Despite a revpar decline of almost $90 versus the comparable period last year, which I have to say, it's pretty remarkable and certainly when doing projections at the beginning of the pack.

And then Oh, we never thought we could deliver that kind of margin.

I, certainly believe that our relative outperformance both versus our peers in the overall industry, which soft third quarter occupancy of approximately 48% and 80 are of $100 is attributable to a combination of our great sales efforts as well as the composition of our portfolio.

Our sales and revenue management teams have delivered outstanding results since the onset of the pandemic as proven by our significant Revpar index or market share gains.

2019, Revpar index was 118 since the first week of April our Revpar index has been significantly higher our second quarter index. As we said prior was 148 in our third quarter Index was 137, 16% higher than our 2018 average and still.

Very impressive statistic given that most hotels have now reopened.

The impressive gains are being driven by islands outstanding direct sales efforts from its national regional and local sales teams at the hotels as well as concentrated revenue management efforts and sharing that worked quickly adjusting to demand and modifying our rates one of the better.

If it's of our platform is that as owners were able to participate in meetings if necessary on a daily basis, what island sales leaders and discuss opportunities in here of recent sales developments.

We won significant business from large nursing groups student housing senior housing and we've increased our government military revenue during this period of time.

With respect to our favorable portfolio characteristics approximately two thirds of our EBITDA is attributable to our residence Inn, and Homewood suites hotels, which have been in higher demand during the pandemic.

We've talked about the benefits many times of being focused in the upscale upscale extended stay arena and having suites that are larger and with full kitchens has been really beneficial in winning business from todays travelers Chatham has the highest percentage of extended stay around.

Evans of all lodging Reits at almost 60% basically doubled the next highest lodging REIT. Additionally, more than 96% of Chathams rooms are characterized as limited service rooms.

Highest percentage among public lodging rates, our upscale extended stay hotels as well as our select and limited service hotels provide us the flexibility during periods of growth or weakness to diversify our customer base to maximize revenue and that's exactly what our operating team has been doing.

And that's reflected in our results.

Some interesting trends in our portfolio continued from the second quarter into the third quarter. Our first average length of stay remains higher than what we are accustomed to experiencing in prior years average length of stay has hovered around 2.5 nights for our two largest brands residence Inn and home would say.

<unk> second quarter 2020 average length of stay was up to five nights for home Woods and 5.9 for our residence Inns.

And a third quarter average length of stay was 3.9 nights for our home was versus 2.7 last year and almost five nights for our residents ends versus 2.8 nights last year second daily demand trends continue to favor weekends and the <unk>.

Contributions of the leisure traveler throughout the pandemic.

Friday Saturday occupancy during the third quarter was 59% with an 80 are of a $114 well for the remainder of the week occupancy is 50% and an 80 are of $108.

Truly amazing that for our portfolio, such as ours, which historically has been relying on the corporate traveler to have these kind of results, but that's what generally the industry is seeing as well.

Looking into the fourth quarter as you saw in our release October Revpar is generally in line with performance the last three months.

In November and December our portfolio will naturally experience of course, some seasonality and we do expect revpar to tick down a few dollars looking further into 2021, we expect that business travel will meaningfully come back once the vaccine is introduced and.

Available I firmly believe that our portfolio attributes and our ability to appeal to the diverse customer base that I've talked about we'll really be able to allow us to grow occupancy and rates faster than most of our lodging peers and return to 29.

Teen levels much sooner this will translate into higher revenue and cash flow for our company and for our shareholders before.

Before I turn it over to Dennis I want to talk about a significant and recent development and that's the pending sale of our 192 room residence Inn in mission Valley in San Diego to the San Diego Housing Commission for $67 million or almost $350000.

Her room not.

Not only does this transaction makes sense from a financial perspective after all the price equates to a very attractive 6.5% cap rate on 2019 results.

Which certainly is far from a distressed price cuts.

The transaction adds meaningful liquidity and allows us to pay off a CMBS loan that was set to mature in a couple of years. So there's liquidity significantly strengthens our balance sheet. During these uncertain times and provides added flexibility to potentially reinvest these proceeds into distressed acquisitions.

Down the road, it's a home run deal for us and for the city of San Diego last.

Lastly, our third quarter operating margins of 36% were very impressive and we remain hyper focused on managing expenses across all departments, especially labor, we were able to deliver positive adjusted EBITDA in the third quarter I'm very pleased with our efforts and want to thank our employees.

I use again across the country for their efforts, although we haven't been able to reach cash flow breakeven.

We're real close and we've significantly reduced our monthly cash burn to approximately 1.6 million per month.

To be cash flow breakeven, we still estimate we need to achieve revpar of approximately $75, but we're not too far away.

Our liquidity runway, especially if you factor in the pending sale of our mission Valley Hotel is approximately 90 months. If you use our third quarter cash burn as a basis, our efficient operating model along with a strengthened balance sheet has a meaningful impact I think on our long term.

Term equity value for our shareholders. Our teams at Chatham an island have the experience to persevere through these situations and we know how to lead a public lodging company through these challenging times with that I'd like to turn it over to Dennis.

Thanks, Jeff among our top six markets, our northeastern coastal market comprised of three hotels was the best performing market with Revpar of $109 on occupancy of about 72% and rates of approximately 150 Bucks. Despite.

Despite the slow opening of Maine, and New Hampshire until July due to CDC and local health Records restrictions all three hotels benefited from the strength of the leisure traveler once that travel restrictions was relaxed as we got towards the end of July.

All of our other key markets, both San Diego and L.A., obviously on both South South Southern California markets saw Revpar of approximately $90 during the third quarter, San Diego benefited from government and military and ship related business and within Los Angeles, Our Anaheim Hotel ran occupancy of.

94% in the third quarter, which was the second highest occupancy in our portfolio.

It was able to gain business from a large nursing group as well as some corporate groups, including the California Angels Silicon Valley Revpar was $54 in the quarter, we did see some business from Apple and a couple of other tech companies from July through Sept.

Timber, which is encouraging but as Jeff mentioned.

Corporate travel is still quite limited.

22 of our 40 hotels had third quarter occupancy over 50%, which compares to only 11 hotels in the second quarter kind.

10 of our hotels had occupancy over 70% in the third quarter, which compares to only two per to two hotels in the second quarter, we had new hotels during the quarter with occupancy under 15% as opposed to three hotels that met that metric in the second quarter.

Some other stand out performing hotels, our markets for us.

Our our Fort Lauderdale residence Inn that had occupancy of 97% in the quarter.

In our two Charleston, Somerville hotels, as well as multiple mountain view in Farmington.

Looking at our segmentation production, our corporate segment production is down approximately 390 basis points as a percentage of revenue to 26% of overall revenue from 30% last year.

Compared to last year corporate revenue is off.

About 65%.

Our retail production increased.

Our retail production increased 140 basis points and accounts for about 58% of our revenue and compared to last year is down about 59% versus 2019 on a relative basis government revenue has been our best performing segment only down 46% on a year over year basis, but it still makes up the lowest.

The three major segments for our business and only about 10% of our production.

Operationally, we are very acute and on the expense side to maximize our margins and minimize cost creep, while revpar levels are depressed and if slowly increased on the island side. We have a team of analysts that are in day to day touch with every hotel GM and investing 100% of their time, managing our PNM calls every regional manager.

Looking at current expenses also on a daily basis, we're closely examining every dollar that's going out the door.

Labor is by far our biggest expense comprising approximately 37% of total operating expenses in the quarter, even though occupancy and revenue have increased substantially off of our April lows. Our hotel employment has not increased materially on March 1st we had almost 1800 hotel level employees at June Thirtyth our.

Hotel employee count was approximately 775 employees and as of September Thirtyth, we stand at about 850 employees that that the fact that we have only increased our employee head count by about 75 employees over the past quarter is a testament to the commitment of our employees and the efficiency of our model.

Looking into labor costs, our third quarter overall labor across across all departments per occupied room was down about 24% and when you look at our rooms Department, our labor cost per occupied room is down approximately 40% to a little over $10 compared to last year of approximately $16 depend.

Depending on the occupancy in local healthcare healthcare guidelines, we have rolled out some some grab and grow or hybrid breakfast offerings, and we don't anticipate commencing any evening social hours as our result, as a result, our complimentary cost have come down meaningfully in the quarter on a per occupied room basis cost decreased from a little over four days.

Callers per occupied room to a dollar and 15 cents, which is a decrease of about 70% to 75%.

There are some fixed labor costs in our departments that cannot be removed from our operating structures from our operating structure without significantly impacting our operations and guest experience. Our DNA operating expenses are down approximately $600000 or 33% in the quarter, but on a cost per occupied room basis are up slightly from.

392 for 20 per occupied room.

And lastly on a per occupied room basis, our repairs and maintenance costs are down again about 33%.

And about $1.12 per occupied room.

In addition to hotel level expense management at the corporate level, we've been very aggressive as a means of adjusting our cost structure. During these difficult times and minimizing cash outflows since we're still operating at a cash burn position on a monthly basis, we instituted corporate pay cuts across the board and Unfortunately, we had to reduce our headcount by price.

Maximally, 35%.

In total we've reduced salary costs by over 50%.

In the second and third quarters on the Capex front, we spent approximately $6 million in the third quarter, including 3 million on our Warner Center development with the majority of the remainder spent on renovations at the Anaheim residence Inn and the residents in New Rochelle in New York, We expect to spend about 1.7 million on off.

Lastly, on a macro front Smith travel reported that new supply continues to decline down 3.4% in the quarter and 4% year to date. In addition to hotel closings, we expect the construction pipeline to shrink considerably in the coming quarters, and it's hard to imagine new supply being an issue since it took almost seven or eight years for new.

[music] supply to approach, 2% after the financial crisis, and obviously as we sit here in the midst of the pandemic. This.

The impact on the industry is going to be much worse.

With that I'm going to turn it over to Jeremy. Thanks, Dennis Good morning, everyone. Chathams Q3, 2020, Revpar was $58, which reflects the 74% increase from our Q2 revpar $33 through our significant efforts to contain costs, we were able to generate Q3 hotel EBITDA margin of 17.9%.

And the G O P margin of 36%, which is really pretty amazing since our $58 revpar for the quarter was down 61% from where it was in Q3 2019.

Our Q3 2020, adjusted EBITDA was $5.1 million.

Okay.

Versus negative $3.3 million in Q2, 2020, chathams improving operating performance in Q3 significantly reduced our cash burn in Q3, Chatham cash flow before capital, which represents hotel EBITDA less corporate DNA interest expense and principal amortization was minus $5.1 million versus.

As minus $12.8 million in Q2.

In the month of September Chathams monthly cash burn was only $1.6 million and that is after approximately $750000 of CMBS principal amortization.

Chatham as a strong balance sheet that business positions us well to weather the disruption being caused by the COVID-19 pandemic. We ended Q3 with 31.6 million of unrestricted cash and $10.8 million of restricted cash EPS growth with loan servicers that can be used for capital expenditures property taxes and insurance.

In early May we completed an amendment to our credit facility that provides us covenant relief until Q2, 2021, and the ability to utilize the entire $250 million capacity the facility.

When covenants begin to be tested against starting in June 2021, EBITDA and a wife figures used for the covenants will be calculated on an annualized basis through the end of 2021.

At September Thirtyth, we had $109 million of liquidity between our unrestricted cash balance and revolving credit facility availability.

Even at our September 2020, Revpar of $60, our monthly cash burn was only approximately $1.6 million before capital. So our current liquidity position covers our current monthly cash burn for approximately 68 months. This provides a significant amount of time for operating performance to recover.

In Q3, we entered into an agreement to sell our residents in mission Valley for $67 million. We expect that this sale will generate approximately $36 million of cash proceeds after transaction cost and the repayment of a $26.8 million mortgage loan on the property.

Assuming this transaction closes our liquidity would increase to $145 million, which would cover our current cash burn for 91 months.

While the sale of the residence Inn mission Valley would generate a taxable gain we expect that the whole amount of the gain will be absorbed by ordinary losses, and there will be no distribution requirements associated with the sale.

In August we obtained a $40 million construction loan to fund the remaining cost of our Warner Center development. This will enable us to complete the project without using any of the liquidity provided by a current cash balance our revolving credit facility.

The construction loan has a four year maturity with two six month extension options and as initially priced at LIBOR plus 750.

Once the property CISA debt yield of 9% spread on the loan decreases to 600 basis points.

While we don't believe we will need additional liquidity beyond what we already have we have six unencumbered hotels with a book value of $276 million that could serve as collateral to raise additional debt proceeds.

Chathams balance sheet also benefits from minimal debt maturities over the next several years the only debt we have maturing between now and the end of 2021 as a single $12.7 million nonrecourse mortgage loan that matures in September 2021. After that the next debt maturity, we have as for our credit facility in March 2022.

We have an option to extend that maturity through March 2023.

We will have a significant amount of time for both hotel operating performance and the capital markets to recover before we need to refinance a material amount of debt beginning in 2023.

With the current lack of visibility around operating performance, we withdrew our earnings guidance in March since the visibility around timing of a recovery in hotel operating performance remains limited we are not going to provide guidance at this time.

This concludes my portion of the call operator, please open the line for questions.

At this time well be conducting a question and answer session. If you would.

I'd like to ask question. Please press star one on your telephone keypad.

For me since I'm not indicate your line is in the question queue. You May press starts you. If you would like to have your question from the Q4 participants using speaker equipment. It may be necessary feed or pick up your handset before pressing the star key one moment, while we pull for questions.

Our first question comes from the line of Ari Klein with BMO capital markets. You May proceed with your question.

Thanks, and good morning.

Jeff can you elaborate on some of the trends you're seeing in October there has been a little bit of a dip in occupancy how much of that when you say seasonality versus maybe the impact of rising Kobe paces and then as you look at November December the decline and the bit of a decline that you're expecting there and that Jeff season.

Or is there any kind of cobot impact there as well.

Okay I appreciate the question look.

Look I think that the October slight decrease in revenue is purely attributable when you look at our numbers for the weekends to just a little less leisure travel period.

We've been really benefited by our Portland, Maine, and Portsmouth, New Hampshire hotels, especially with with downtown Savannah in the historic district, putting up great numbers on the weekend. So you just don't have the extent of that travel, but it's a pretty as you can see from the numbers.

Pretty minor reduction in revenue so we feel real good about what we're doing here.

November December I'll leave that to dentists are Jeremy, but I think thats purely seasonality the increase in cobot cases.

And seeing those kind of headlines I'm hearing from our operating team.

Is not at least as of today impacting our occupancy or our revpar.

And I think it's purely a combination of leisure dynamic little colder weather.

So they're not out as much on the weekends traveling like that.

But Dennis you want to add anything to that.

No I think thats right.

Well I appreciate that.

[laughter].

All right. Thanks, and then just on the asset sales can you talk about what performance at that hotel has been like throughout pandemic and then is this from an asset sale standpoint or are you looking to transition our health what can we expect from that standpoint.

Let me listen we don't have anything else.

Sorry for sale at the moment.

In a broker transaction I think as you saw in the release, we especially with respect to this opportunity.

This was something ironically that we discussed at our board meeting in February just looking at some type of alternative buyers.

For our properties and within.

Kind of the next few months.

We had received some.

Some interest from the from the housing Commission.

Listen I think we were.

Quick to to look at the opportunity quit to negotiate I think a pretty pretty good price on our behalf and also to provide some permanent supportive housing for the city of San Diego.

We do have another hotel.

Downtown San Diego gasoline, which is a residence inn, which I think should benefit a little bit you know should benefit in terms of IND.

Increase occupancy as our customers because they are not very far apart only probably three or four miles apart.

That we can shift over to our gasoline publication, but as far as performance. This year. Our mission Valley Hotel has been has performed pretty well.

In 2019 in Ohio is about 4.3 million.

2020 in ally is projected to be around 2.6.

Trailing 12 in NOI is about $2.4 million and if you just look at the quarter.

On an occupancy in HDR basis occupancy was about 72% at a rate of $152 in revpar of about $109. So one of our better performing assets, we did have some pretty significant.

Government and military business in that hotel since the onset of the pandemic. So.

Listen I think we certainly both on the acquisition and disposition perspective would like to be we continue to want to be opportunistic. This was a great way of I think exemplifying that.

And really using that to significantly enhance our liquidity for whether it's to ride out the right out the pandemic.

But also to provide capital that we can hopefully use.

Once things began to come back and stabilize for.

Some distressed acquisitions that we can get much more upside on.

Got it appreciate the color.

Thanks.

Thank you for your.

Question comes from the line of Brian.

Right.

You May proceed with your question.

Great and good morning, and quite frankly, a pretty good quarter, all things considered so congrats Brian.

Hi.

When we look at this you know the sale.

And I hear you that there's nothing else kind of being brokered for sale what have you, but on the flip side of that when you look at the landscape and maybe this is best for Jeff.

Are you seeing are starting to see are being approached by lenders who are taking back at that sort of CMBS servicers et cetera for things that you might like to buy and if so how would you finance that or would you consider teaming up with private equity again to take on maybe a small portfolio.

Yeah.

Yes, Brian I think what we're seeing now is what I call. The very tip of the iceberg a few deals that are not direct from lenders yet because as I've explained I think even on our prior earnings call I think that process takes into the first quarter.

Order of next year for them to really get out there and market something.

But tip of the iceberg is some companies that just need some more liquidity and therefore, our offering some assets up that otherwise they certainly wouldn't be selling in a non cobot environment. So there might be an opportunity or two.

Out there already.

And we're certainly looking because I think our history proves that we know how to acquire.

Especially in a distressed type environment and make money doing that for our shareholders. How do you finance it.

Well, we've got the liquidity that Jeremy was talking about but I think our board is going to be and we as a management team will be pretty judicious and not pulling the trigger any time soon until we get a little better visibility on where revpar is heading in the recovery.

But I do think that hey, if it's a select service or extended stay hotel.

Depending on the market and how well it's being around the negative cash burn is going to be pretty insignificant.

You know to acquire and I think what we would do is look at our own resources and also with a bigger appetite like you said look at a JV structure such as we've done in the past.

Great.

Look you guys are pretty club dealing with the brain.

When you think about what's going on with brands Danbury, and then having used some slack in on everybody to get in touch with black during the pandemic. How do you think about that you know when we look at 2021 2022, and do you think that there's going to be permanent changes there that can positively impact margins going for.

Howard.

Yeah I'll take this and then Dennis likes to chime in on this one but you know I might not be I might not be as optimistic as him.

I think obviously, you're going to have some lingering effects that are.

Going to benefit your margins here in our hotels, it's very insignificant.

Happen be but the complimentary breakfast offerings in the complementary cocktail hour and offering that goes around that both in the residence Brandon the Homewood brands I think.

On that front that evening, our probably goes away altogether for one or both of those brands. So thats very encouraging.

The breakfast I have a feeling one way or the other the brands will figure out a way to incrementally creep that right back to where it was before [laughter] will find that the rest of the franchisee community, we'll fight it and.

We'll see how far they get with that.

Yes, I mean, I think the only thing Brian I think the only thing I would add to that is yes.

Jeff talked about on the complimentary stuff I think in 2019.

It kind of a for a little over $4 in occupied room for us that's about eight or $9 million per year.

Of expenses so.

Even if the social hour goes away in breakfast is going to still be around as Jeff said.

Our third quarter CPR was about a buck which is obviously really low.

But listen I think even if you can get it at $4 down to $3 for us. That's a that's a couple of million Bucks of EBITDA, which is encouraging just on and that's just on the complimentary side. When you look at rooms labor and everything like that that Weve harped on now for <unk>.

Probably 45678 quarters I don't know we spent about.

I think we spent roughly.

$65 million on on labor cost and benefit costs in 2019.

Of which about I think $35 million to $40 million of that was in the rooms department. So again to the extent that things change, where you know either you're not servicing a room as much or youre being able to somehow offer a pay for additional cleaning.

Then there is some pretty significant.

Dollars there that we could also bring in.

If you just somehow said hey, we can somehow say 5% of that.

So again another couple of million dollars of EBITDA. So.

We think we will be able to be a little bit more profitable.

On the other side.

Yeah. The housekeeping is Brian just to pick up on that and then we'll leave it the housekeeping charges I think for a stay over guests will will absolutely be way less after the pandemic than they were before because I don't think the expectation of people is.

You know they really want housekeepers in the rooms anyway, so that could be very significant and an extended stay hotel again with the average length of stay that we've got.

Much bigger benefit and frankly, a bigger impact to to to help us push that margin up even higher than other types of hotels.

Okay. Thanks, Jeff.

Our next question comes from the line of Kaila battery with Janney Capital markets. You May proceed with your question.

Thank you good morning.

Follow up on.

Some of the other questions.

That have already been asked here and.

Answer if you go back about length of stay statistic that you guys cited in the opening remarks.

Leisure travel, what's what's driving up average length of stay higher and kind of how impactful but back to your to your margin.

In the third quarter here.

Yes that is what I think yes.

Yeah I'll take this Jeff.

The length of stay is really going to be driven not so much by the leisure traveler, even though for us thats moved up.

In terms of just as a percentage of our total revenue the length of stay is really going to be a drip attributable to the nurses.

And to the government business that we've been able to bring into our hotels, that's where you're getting the length of stays I mean, we've got several hotels, whether that to Anaheim Fort Lauderdale, a couple in the northeast where we've got a lot.

Large nursing groups in the hotels.

We've got government military business in San Diego in Charleston, Somerville, as well as up in the northeast and even in San Mateo at our at our residence Inn in there again longer term guest.

Have some student housing.

A few of our hotels again longer term guests. So it's really just a nature of the business that we have in our hotels at the moment.

And I think your second part of that question, which is margin related is yes, as Jeff talked about.

The.

The fact that we're not in these rooms very very frequently.

Even whether it be a short term or long term guest.

The cleaning of the rooms has certainly come down in terms of frequency. So we've benefited from that as well.

Okay, and that's where I think if you look at some of the if you if you recall.

No sorry in my prepared comments, our cost per occupied room in our rooms Department was 16 Bucks per occupied room in the 2019 third quarter and that's down to about $10.

In the third quarter of 2020, so pretty significant decline.

Okay. Okay. That's a good segue into my next line of line of questioning guarantee you went through.

Some of the numbers in terms of the employees that you have working at the property level at what point you need to start adding more I mean, you got 60% occupancy was at 55.

I'm, just kind of curious how you're thinking about that progression going forward.

I mean, I think if you looked at the data points going from kind of.

Seven 775 to 850 between June and September I.

I think in our third quarter occupancy was fairly stable in that 55% range.

I think if you move from 55 to 60, you're probably not changing your employee base a whole lot I think as you get into kind of the mid sixtys, and especially up 70% you're going to start bringing back more people.

I don't I think again, if you compare today's environment versus pre Corona.

Again due to the frequency of housekeeping, which Jeff said and we all believe is going to be less after the fact, you are definitely not going to be bringing back the same number of employees as you would have pre pre pandemic.

Okay and last question for me do you have any sense on how many hotels in your markets right now are still closed and following on with that what's going on in terms of.

Here are some of these properties in your markets I will bear reopening.

Yes, I think.

Yes, it's I think the talk about the first one I don't know I can come back to you Tyler on percentage of rooms that are still close versus September thirtyth versus June Thirtyth search.

Certainly we've seen a lot of openings during the quarter I just don't know what that number is but I can get that to you.

And then the second part of the question with respect to races as hotels have opened I.

I think originally you know.

You heard from some of our peers and just the industry that they.

They were opening and they were maintaining rates is.

Comparable to last year are higher than last year, which I think is.

Quite honestly.

No.

A fairly BS comment because they are really only talking about having the hotels opened on the weekends when the leisure travel or was there.

To be opened seven days a week.

And to be open 30 days, a month or every day and all that kind of stuff. The race naturally are going to come down to what the market will bear so I think for US we've seen again rates kind of hover in $110 range for the last 90 days really 120 days.

I think as you know and I think I don't expect that to move very much.

From that range for the next 90 to 120 days so.

I think rates are only going to be what the market's going to bear and those are certainly much lower than what they were previously.

Okay, great Okay.

That's all for me, Michael nice quarter by the way as well thank you.

Thank you.

As a reminder, you would like to ask a question. Please press star one on your telephone keypad.

One moment.

Question.

Our next question comes from the line of Anthony Powell with Barclays. You May proceed with your question.

Hi, good morning.

A question on the.

The fuel price if we can have some cap rate, which is pretty good how do you and the buyer get to that point.

It was I mean listen I think it was a negotiation obviously.

We were we were from that you know.

We are not interested in selling at a distressed price the hotel as we talked about on a per.

Prior question.

Hotel is one of our top performers through the pandemic for the last five or six months. So you know I think for us its a.

It was a fair price I think for both parties I think for US. It's we're very pleased with the six and a half cap on a 2019 number that was very strong I.

I think you know the.

The the asset condition was very helpful.

In maintaining price integrity, we had just renovated it a few years ago.

It's.

Current in terms of every need at the San Diego asking Commission was was was meeting for its permanent supportive housing.

Targets. So I think all in all there is going to be that all benefited in terms of price.

And the fact that we.

Unfortunately for.

Unfortunately for on the island side listen, it's we are able to sell that hotel as well again, a benefit to our shareholders without having to pay any type of management termination fees.

Which is again accrues value to our shareholders. So really the price was a negotiated price it had to be a market price.

And we weren't going to sell it at a distressed price at all so.

Got it and are there any other hotels in the portfolio that may fit. This time of alternative means that you're kind of exploring now given given the strong pricing you saw in this transaction.

I mean listen I think in California for Us Anthony there might be an opportunity in northern California at one of our four hotels.

The state of California is really.

Especially southern California is real and San Diego, specifically has done this quite a few times over the past what I'd say five or so years. So they really have the the the process. The mechanics to do these types of transactions transactions and to finance. These transactions importantly, so I think.

A lot of jurisdictions around the country are way behind in terms of how to make that work and how to how to execute that transaction I will say you know it and given some again kind of an attribute to our portfolio with the bulk significant extended stay component is we have seen over the last six months or so.

Other investors.

Investors looking at our extended stay hotels potentially for other uses whether that's.

In this case.

Permit supportive housing versus student housing.

In some urban locations so.

That's that's an interesting dynamic thats come about in the last six months and we're going to continue to be opportunistic about that if if the price is right and if we believe we can.

It's a it's a good deal for our shareholders.

Alright, and maybe just one more in terms of the direct labor cost I know in the past you talked about.

The difficulty of finding labor given some of the employment sport that was out there that kind of run out and a lot of locations. What's your view on kind of on wage wage pressure in labor costs, given all the items.

Unemployment.

Isn't that coming into now.

And we will market changing what do you think you'll be able to.

Next year as things ramp up.

Bob you know more pricing to be big thing last year.

Yes, I think two different points two different answers to that question one is.

After the $600 a week supplement.

It was it was was.

And canceled or not cancelled, but ran out from the government in unemployment.

Yes, we've certainly seen more availability of labor and quite honestly it during that period it was tough.

To find unbelievably defined housekeepers or.

Lower rate per hour employees, because they are making more money sitting on their couch. So.

That has loosened up a little bit and will only continue to listen I think as those government benefits start to tail off and obviously there is nothing at the moment.

Whether that is part of the next wave of.

Wave of support who knows but I think as the industry rebounds, we don't certainly feel that wage pressures are going to be what they were at the beginning of this year and over the last couple of years. So we do believe that.

We will be able to replace the labor at at some discount to what we had been paying pre pandemic.

Okay. Thank you.

Ladies and gentlemen, we have reached the end of today's question and answer session I would like to turn the call back.

Fischer for closing remarks.

Well. Thank you everybody. We certainly appreciate as I said at the outset, you being on the call and we serve.

Certainly appreciate the questions and the interest in Chatham, we're going to continue to do exactly what we've been doing which is working with our management company controlling our expenses on a daily basis and maximizing our revpar. During this period of time.

To get back negative cash burn to zero and ultimately of course substantially positive and we look forward to reporting those kind of positive developments as we move forward. Thanks a lot.

Thank you Bridget.

Conclude today's conference you may disconnect. Your lines at this time have a great evening.

[music].

Greetings and welcome to the try to lodging Trust third quarter 2020 financial results Conference call.

It's time all participants are in a listen only mode. A question answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.

I'd now like to turn this conference over to your host Mr., Chris Daly President of DG Public relations. Thank you you may begin.

Thank you Laura good morning, everyone welcome to the Chatham Lodging Trust third quarter 2020 results conference call. Please.

All information in this call is as of October 29, 2020, unless otherwise noted.

Company undertakes no obligation to update any forward looking statements to conform the statement to actual results or changes in the company's expectations.

You can find copies of our SEC filings and earnings release, which contain reconciliations to non-GAAP financial measures referenced on this call on our website at Chatham Lodging Trust Dot Com no.

Now to provide you some.

Inside the Chathams 2023rd quarter results allow me to introduce Jeff Fisher, Chairman, President and Chief Executive Officer, Dennis Craven Executive Vice President and Chief Operating Officer, Jeremy Wegner, Senior Vice President and Chief Financial Officer.

Session over to Jeff Fisher, Jeff.

Thanks, Chris Good morning, everyone first and foremost thank you for your interest in Chatham and we sincerely appreciate your participation.

These unusual times the co that 19 pandemic has been one of the most destructive events to the global or national economy in history and its impact on the lodging industry is unprecedented.

But all things considered I'm very pleased with our current results and the extraordinary work our team has done during this difficult time.

Timber and October.

The improving trend can be attributable to the leisure traveler, who came out in force during the summer we did see some return of corporate travel, but it remains quite limited and at rates more in line with our overall portfolio 80 ours since.

Since the beginning of August our occupancy has hovered around 55% and our HDR has remained around $110.

Although other soft performance decline in September and October we've been able to maintain our operating performance.

As I said.

This unprecedented period as required intense asset management and operating focus and I'm very proud of the efforts of our teams at both Chatham an island hospitality, we had the highest absolute revpar of all lodging Reits in the second quarter and I'm confident that our third quarter Revpar will be near the top addition.

Finally, we delivered GLP margins of 36% in the quarter. Despite a revpar decline of almost $90 versus the comparable period last year, which I have to say is pretty remarkable and certainly when doing projections at the beginning of the.

Pandemic, we never thought we could deliver that kind of margin.

I, certainly believe that our relative outperformance both versus our peers in the overall industry would soft third quarter occupancy of approximately 48% and HDR of $100 is attributable to a combination of our great sales efforts as well as the composition of our portfolio.

Our sales and revenue management teams have delivered outstanding results since the onset of the pandemic as proven by our significant Revpar index or market share gains.

Very impressive statistic given that most hotels have now reopened the.

The impressive gains are being driven by islands outstanding direct sales efforts from its national regional and local sales teams at the hotels as well as concentrated revenue management efforts and sharing that we are quickly adjusting to demand and modifying our rates one of the benefit.

Most of our platform is that as owners were able to participate in meetings if necessary on a daily basis, what island sales leaders and discuss opportunities in here of recent sales developments.

We won significant business from large nursing groups student housing senior housing and we've increased our government military revenue during this period of time.

With respect to our favorable portfolio characteristics approximately two thirds of our EBITDA is attributable to our residents and Homewood suites hotels, which have been in higher demand during the pandemic.

We've talked about the benefits many times of being focused in the upscale upscale extended stay arena and having suites that are larger and with full kitchens has been really beneficial and winning business from todays travelers Chatham has the highest percentage of extended stay.

Rooms of all lodging Reits at almost 60% basically double the next highest lodging rate.

Additionally, more than 96% of Chathams rooms are characterized as limited service rooms, the highest percentage among public lodging Reits, our upscale extended stay hotels as well as our selected limited service hotels provide us the flexibility during periods of growth or weakness to diversify our custom.

Our base to maximize revenue and that's exactly what our operating team has been doing and that's reflected in our results.

Some interesting trends in our portfolio continued from the second quarter into the third quarter. Our first average length of stay remains higher than what we are custom to experiencing in prior years average length of stay has hovered around 2.5 nights for our two largest brands residence Inn and Homewood suites.

Second quarter 2020 average length of stay was up to five nice for our home Woods and 5.9 for our residents Vince.

In the third quarter average length of stay was 3.9 nights for our home was versus 2.7 last year and almost five nights for our residents ends versus 2.8 nights last year second daily demand trends continue to favor weekends and the.

Contributions of the leisure traveler throughout the pandemic flu.

Friday Saturday occupancy during the third quarter was 59% with an hbr of $114 well for the remainder of the week occupancy is 50% at an 80 are of $108.

Truly amazing that for our portfolio, such as ours, which historically has been reliant on the corporate traveler to her.

These kind of results, but thats, what generally the industry is seeing as well.

Looking into the fourth quarter as you saw in our release October Revpar is generally in line with performance the last three months.

And November and December our portfolio will naturally experience of course, some seasonality and we do expect revpar to tick down a few dollars looking further into 2021, we expect that business travel will meaningfully come back once the vaccine is introduced and.

Available I firmly believe that our portfolio attributes and our ability to appeal to the diverse customer base that I've talked about we'll really be able to allow us to grow occupancy in rates faster than most of our lodging peers and return to 29.

Teen levels much sooner this will translate into higher revenue and cash flow for our company and for our shareholders before.

Before I turn it over to Dennis I want to talk about a significant and recent development and that's the pending sale of our 192 room residence Inn and mission Valley in San Diego to the San Diego Housing Commission for $67 million or almost $350000.

Her room not.

Not only does this transaction makes sense from a financial perspective after all the price equates to a very attractive 6.5% cap rate on 2019 results.

Which certainly is far from a distressed price cuts.

Down the road.

It's a home run deal for us and for the city of San Diego.

Lastly, our third quarter operating margins of 36% were very impressive and we remain hyper focused on managing expenses across all departments.

Especially labor.

We were able to deliver positive adjusted EBITDA in the third quarter.

Very pleased with our efforts and want to thank our employees again across the country for their efforts, although we haven't been able to reach cash flow breakeven.

We're real close and we've significantly reduced our monthly cash burn to approximately 1.6 million per month.

To be cash flow breakeven, we still estimate we need to achieve revpar of approximately $75, but we're not too far away.

From equity value for our shareholders. Our teams at Chatham an island have the experience to persevere through these situations and we know how to lead a public lodging company through these challenging times with that I'd like to turn it over to Dennis.

CDC and local health records restrictions all three hotels benefited from the strength of the leisure traveler once that travel restrictions was relaxed as we got towards the end of July.

Two of our other key markets, both San Diego and La obviously on both South South Southern California markets saw Revpar of approximately $90 during the third quarter, San Diego benefited from government and military and ship related business and within Los Angeles, Our Anaheim Hotel ran occupancy of.

94% in the third quarter, which was the second highest occupancy in our portfolio.

From July through September, which is encouraging but as Jeff mentioned.

Corporate travel is still quite limited.

22 of our 40 hotels had third quarter occupancy over 50%, which compares to only 11 hotels in the second quarter kind.

Some other stand out performing hotels, our markets for us where our Fort Lauderdale residence Inn that had occupancy of 97% in the quarter.

In our two Charleston, Somerville hotels, as well as multiple mountain view in Farmington.

Looking at our segmentation production, our corporate segment production is down approximately 390 basis points as a percentage of revenue to 26% of overall revenue from 30% last year.

Compared to last year corporate revenue is off.

About 65%.

Our retail production increased.

Three major segments for our business and only about 10% of our production.

Operationally, we are very acute in on the expense side to maximize our margins and minimize cost creep, while revpar levels are depressed and if slowly increased on the island side. We have a team of analysts that are in day to day touch with every hotel GM and investing a 100% of their time managing our PNM deals every regional.

Manager is looking at current expenses also on a daily basis. We're closely examining every dollar that's going out the door.

Labor is by far our biggest expense comprising approximately 37% of total operating expenses in the quarter, even though occupancy and revenue have increased substantially off of our April lows. Our hotel employment has not increase materially on March 1st we had almost 1800 hotel level employees at June Thirtyth our.

Looking into labor costs, our third quarter overall labor cross across all departments per occupied room was down about 24% and when you look at our rooms Department, our labor cost per occupied room is down approximately 40% to a little over $10 compared to last year of approximately $16, depending on the occupancy in local health.

Healthcare guidelines, we have rolled out some some grab and grow or hybrid breakfast offerings, and we don't anticipate commencing any emerging social hours.

As our result, as a result, our complimentary cost have come down meaningfully in the quarter on a per occupied room basis cost decrease from a little over $4 per occupied room to a dollar and 15 cents, which is a decrease of about 70% to 75%.

From 392 for 20 per occupied room, and lastly on a per occupied room basis, our repairs and maintenance costs are down again about 33% and.

And about a $1.12 per occupied room.

In addition to hotel level expense management at the corporate level, we've been very aggressive as a means of adjusting our cost structure. During these difficult times and minimizing cash outflows. Since we are still operating at a cash burn position on a monthly basis, we instituted corporate pay cuts across the board and Unfortunately, we had to reduce our headcount by price.

Definitely 35%.

In total we have reduced salary costs by over 50%.

In the second and third quarters on the Capex front, we spent approximately $6 million in the third quarter, including $3 million on our Warner Center development with the majority of the remainder set on renovations at the Anaheim residence Inn and that residence Inn in New Rochelle, New York, We expect to spend about 1.7 million on off.

On all remaining capex in the fourth quarter other than on Warner Center development, which is moving along quickly.

New supply to approach, 2% after the financial crisis, and obviously as we sit here in the midst of the pandemic. This.

The impact on the industry is going to be much worse.

With that I'm going to turn it over to Jeremy. Thanks, Dennis Good morning, everyone. Chathams Q3, 2020, Revpar was $58, which reflects a 74% increase from our Q2 revpar $33 through our significant efforts to contain costs, we were able to generate Q3 hotel EBITDA margin of 17.9%.

And the G O P margin of 36%, which is really pretty amazing since our $58 revpar for the quarter was down 61% from where it was in Q3 2019.

Our Q3 2020, adjusted EBITDA was $5.1 million.

<unk> million versus minus $12.8 million in Q2.

In the month of September Chathams monthly cash burn was only $1.6 million and that is after approximately $750000 of CMBS principal amortization.

Chatham has a strong balance sheet the business positions us well to weather the disruption being caused by the COVID-19 pandemic. We ended Q3 with 31.6 million of unrestricted cash and $10.8 million of restricted cash EPS growth with loan servicers that can be used for capital expenditures property taxes and insurance.

In early May we completed an amendment to our credit facility that provides us covenant relief until Q2, 2021, and the ability to utilize the entire $250 million capacity the facility.

When covenants begin to be tested again, starting in June 2021, EBITDA and a wife figures used for the covenants will be calculated on an annualized basis through the end of 2021.

At September Thirtyth, we had $109 million of liquidity between our unrestricted cash balance and revolving credit facility availability.

Even at our September 2020, Revpar $60, our monthly cash burn was only approximately $1.6 million before capital. So our current liquidity position covers our current monthly cash burn for approximately 68 months. This provides a significant amount of time for operating performance to recover.

In Q3, we entered into an agreement to sell our residence Inn mission Valley for $67 million. We expect that this sale will generate approximately $36 million of cash proceeds after transaction cost and the repayment of a $26.8 million mortgage loan on the property.

Assuming this transaction closes our liquidity would increase to $145 million, which would cover our current cash burn for 91 months.

The construction loan has a four year maturity with two six month extension options and is initially priced at LIBOR plus 750.

The property achieves a debt yield of 9% spread on the loan decreases to 600 basis points.

Chathams balance sheet also benefits from minimal debt maturities over the next several years the only debt we have maturing between now and the end of 2021 as a single $12.7 million non recourse mortgage loan that matures in September 2021. After that the next debt maturity, we have as for our credit facility in March 2022.

We have an option to extend that maturity through March 2023.

We will have a significant amount of time for both hotel operating performance and the capital markets to recover before we need to refinance a material amount of debt beginning in 2023.

This concludes my portion of the call operator, please open the line for questions.

At this time well be conducting a question and answer session. If you would.

I'd like to ask question. Please press star one on your telephone keypad.

Indicate your line is in the question queue. You May Press Star Q. If you would like to have your question from the Q4 participants using speaker equipment. It may be necessary to pick up your handset before pressing the star key.

Moment, while we pull for questions.

Our first question comes from the line of Ari Klein with BMO capital markets. You May proceed with your question.

Thanks, Dan Good morning.

Maybe Jeff can you elaborate on some of the trends you're seeing in October there has been a little bit of a dip in occupancy how much of that when you said seasonality versus maybe the impact of rising Kobe cases, and then as you look at November December the decline and the bit of a decline that you're expecting there and that season.

LTE or is there any kind of cobot impact there as well.

Okay I appreciate the question look.

Look I think that the October slight decrease in revenue is purely attributable when you look at our numbers for the weekends to just a little less leisure travel period.

We've been really benefited by our Portland, Maine, and Portsmouth, New Hampshire hotels, especially wood with downtown Savannah in the historic district, putting up great numbers on the weekend. So you just don't have the extent of that travel, but it's a pretty as you can see from the numbers.

Pretty minor reduction in revenue so we feel real good about what we're doing here.

November December I'll leave that to dentists are Jeremy, but I think thats surely seasonality the increase in cobot cases.

And seeing those kind of headlines I'm hearing from our operating team is.

Not at least as of today impacting our occupancy or our revpar.

And I think it's purely a combination of leisure dynamic little colder weather.

So they're not out as much on the weekends traveling like that.

But Dennis you want to add anything to that.

No I think thats right.

I appreciate that.

All right. Thanks, and then just on the App itself can you talk about what the performance at that hotel has been like throughout pandemic and then that's it from an asset sale standpoint or are you looking to transition.

What should we expect from that standpoint.

I mean listen we don't have anything else.

Sorry for sale at the moment.

In a broker transaction I think as you saw in the release, we especially with respect to this opportunity.

This was something ironically that we discussed at our board meeting in February just looking at some type of alternative buyers.

For our properties and within.

The next few months.

We had received some.

Some interest from the from the housing Commission.

Listen I think we were.

CWIP to to look at the opportunity equipped to negotiate I think a pretty pretty good price on our behalf and also to provide some permanent supportive housing for the city of San Diego.

We do have another hotel.

Around town, San Diego gasoline, which is a residence inn, which I think should benefit a little bit should benefit in terms of IND.

Increased occupancy as our customers because they are not very far apart only probably three or four miles apart.

That we can shift over to our gas lamp location, but as far as performance. This year. Our mission Valley Hotel has been has performed pretty well.

In 2019 in Ohio was about 4.3 million.

2020 in ally is projected to be around 2.6.

Trailing 12 in NOI is about $2.4 million and if you just look at the quarter.

On an occupancy and HDR basis occupancy was about 72% at a rate of $152 in revpar of about a $109. So one of our better performing assets, we did have some pretty significant.

Government and military business in that hotel since the onset of the pandemic. So.

Listen I think we certainly both on the acquisition and disposition perspective would like to be we continue to want to be opportunistic. This was a great way of I think exemplifying that.

And really using that to significantly enhance our liquidity for whether it's to ride out the right out the pandemic.

But also to provide capital that we can hopefully use.

Once things began to come back and stabilized for.

Some distressed acquisitions that we can get much more upside on.

Got it appreciate the color.

Thanks.

Thank you final question comes from the line of Brian.

Right.

You May proceed with your question.

Great and good morning, and quite frankly pretty good quarter, all things considered so congrats Brian.

Hi.

When we look at this you know.

Sal and I hear you that there's nothing else kind of being brokered for sale or what have you but.

But on the flip side of that when you look at the landscape and maybe this is best for Jack.

Are you seeing are starting to see are being approached by lenders who are taking back at that sort of CMBS, servicers et cetera, or things that you might like to buy.

So how would you finance that or would you consider teaming up with private equity again to take on maybe a small portfolio.

Yeah, Brian I think what we're seeing now is what I call. The very tip of the iceberg a few deals that are not direct from lenders yet because as I've explained I think even on our prior earnings call I think that process takes into the first quarter.

Our next year for them to really get out there and market something.

But typically iceberg is some companies that just need some more liquidity and therefore, our offering some assets up that otherwise they certainly wouldn't be selling in a non cobot environment. So there might be an opportunity.

Or two out there already.

And we're certainly looking because I think our history proves that we know how to acquire you know, especially in a distressed type environment and make money doing that for our shareholders. How do you finance it.

But I do think that hey, if it's a select service or extended stay hotel.

Depending on the market and how well it's being around the negative cash burn is going to be pretty insignificant.

You know to acquire and I think what we would do is look at our own resources and also with a bigger appetite like you said look at a JV structure such as we've done in the past.

Great and then look you guys are pretty club the break.

On when you think about what's going on with brand standards and then how to use some slack you want everybody to get in touch with black during the pandemic. How do you think about that when we look at 2021 2022 and do you think this is going to be permanent changes that can positively impact margins.

Going forward.

Yeah, Okay, Yes, and then Dennis likes to chime in on this one but you know I might not be I might not be as optimistic as him.

I think obviously, you're going to have some lingering effects that are going to benefit your margins here in our hotels, it's very insignificant app.

FNB, but the complimentary breakfast offerings in the complementary cocktail hour and offering that goes around that both in the residence brand in the Homewood brands I think.

On that front that evening, our probably goes away altogether for one or both of those brands. So that's very encouraging.

The breakfast I have a feeling one way or the other the brands will figure out a way to incrementally creep back right back to where it was before [laughter], we'll fight it the rest of the franchisee community, we'll fight it and yes.

We'll see how far they get with that.

Yes, I mean, I think the only thing Brian I think the only thing I would add to that is.

Jeff talked about on the complimentary stuff I think in 2019.

What kind of a for a little over $4 in occupied room for us that's about eight or $9 million per year.

Of expenses so.

Even if the social hour goes away and breakfast is going to still be around as Jeff said.

Our third quarter CPR was about a buck which is obviously really low.

But listen I think even if you can get that $4 down to $3 for us. That's a that's a couple of million Bucks of EBITDA, which is encouraging just on and that's just on the complimentary side.

When you look at rooms, labor and everything like that that Weve harped on now for.

Probably four or 5678 quarters I don't know we spent about.

I think we spent roughly.

$65 million on on labor cost and benefit costs in 2019.

Of which about I think $35 million to $40 million of that was in the rooms department. So again to the extent that things change where you know either.

Either you're not servicing a room as much or youre being able to somehow offer a pay for additional cleaning.

Then there's some pretty significant.

Dollars there that we could also bring in.

If you just somehow said hey, we can somehow say 5% of that.

So again another couple of million dollars of EBITDA. So.

We think we will be able to be a little bit more profitable.

On the other side.

Yeah, the housekeeping, obviously as Brian just to pick up on that and then we'll leave it the housekeeping charges I think for a stay over guests will will absolutely be way less after the pandemic than they were before because I don't think the expectation of people.

Is that.

They really want housekeepers in the rooms anyway, so that could be very significant and an extended stay hotel again with the average length of stay that we've got a much bigger benefit and frankly, a bigger impact to to to help us push that margin up even higher.

The other types of hotels.

Okay. Thanks, Jeff.

Our next question comes from the line of Tyler Battery with Janney Capital markets. You May proceed with your question.

Thank you good morning.

Follow up on.

Some of your other questions.

That have already been asked here I'm going to answer.

Sure. If you go back we got that length of stay statistic that you guys cited in the opening remarks.

Leisure travel, what's what's driving up average length of stay higher and kind of how impactful but back to your to your margin.

In the third quarter here.

Yes, I think yes.

Yeah I'll take this Jeff.

The length of stay is really going to be driven not so much by the leisure traveler, even though for US that's moved up.

In terms of just as a percentage of our total revenue the length of stay is really going to be a driven attributable to the nurses.

Into the government business that we've been able to bring into our hotels, that's where you're getting the length of stays I mean, we've got several hotels, whether that's anaheim.

Fort Lauderdale.

A couple in the northeast where.

We've got a.

A large nursing groups and the hotels.

We've got government military business in San Diego in Charleston, Somerville, as well as up in the northeast and even in San Mateo at our at our residence Inn in there again longer term guest.

We have some student housing it.

A few of our hotels again longer term guests. So it's really just a nature of the business that we have in our hotels at the moment.

And I think your second part of that question, which is margin related is yes, as Jeff talked about.

The the fact that we're not in these rooms very very frequently.

Evan whether it'd be a short term or long term guest.

The cleaning of the rooms is certainly come down in terms of frequency. So we've benefited from that as well.

Okay, and that's where I think if you look at some of the if you if you recall.

No sorry in my prepared comments, our cost per occupied room in our rooms Department was 16 Bucks per occupied room in the 2019 third quarter and that's down to about $10.

In the third quarter of 2020, so a pretty significant decline.

Okay. Okay. That's a good segue right right got Quantiq line of questioning guarantee you went through.

Some of the numbers in terms of the employees that you have working at the property level at what point you need to start adding more I mean, you get 60% occupancy was at 55.

I am just kind of curious how you're thinking about that progression going forward.

I mean, I think as you. If you know if you looked at the data points going from kind of.

Seven 775 to 850 between June and September I.

I think in our third quarter occupancy was fairly stable in that 55% range.

I think if you move from 55 to 60, you're probably not changing your employee base a whole lot I think as you get into kind of the mid.

Mid Sixtys, and especially up 70% you are going to start bringing back more people.

I don't I think again, if you compare today's environment versus pre Corona.

Okay.

Last question for me do you have any sense on how many hotels in your markets right now are still closed and following on with that what's going on in terms of.

There are some of these properties in your markets I will bear reopening.

Yes. Thank you.

Yes, it's I think to talk about the first one I don't know I can come back at Tyler on percentage of rooms that are still close versus September thirtyth versus June thirtyth certain.

Certainly we've seen a lot of openings during the quarter I just don't know what that number is but I can get that to you.

And then the second part of the question with respect to races as hotels have opened I.

I think originally you know.

You heard from some of our peers and just the industry that they.

They were opening and they were maintaining rates is.

Comparable to last year are higher than last year, which I think is key.

Quite honestly.

No.

A fairly be EPS comment because they are really only talking about having the hotels opened on the weekends when leisure travel or was there.

To be opened seven days a week.

I think as you know.

I think I don't expect that to move very much.

From that range for the next 90 to 120 days. So I think rates are only going to be what the market's going to bear and those are certainly much lower than what they were previously.

Okay, Great. That's all for me Mex nice quarter by the way as well. Thank you.

Thank you.

As a reminder.

Good question. Please press star one on your.

Okay Pat.

One moment for questions.

Our next question comes from the line of Anthony Powell with Barclays. You May proceed with your question.

Hi, good morning.

A question on the.

The sale price if we can have some kathleen just pretty good how.

How did you end the buyer gets about price.

It was I mean listen I think it was a negotiation obviously.

We were we were from that.

We are not interested in selling at a distressed price the hotel as we talked about on a prior question.

The hotel is one of our top performers through the pandemic for the last five or six months. So you know I think for us its a.

If there was a fair price I think for both parties I think for US. It's we're very pleased with the six on a half cap on a 2019 number that was very strong.

I think.

The the asset condition was very helpful.

In maintaining price integrity, we had just renovated it a few years ago.

It's.

Current in terms of every need at the San Diego Housing Commission was was was meeting for its permanent supportive housing.

[music].

Targets. So I think all in all there is going to be that all benefited in terms of price.

And the fact that we you know.

Unfortunately for.

Unfortunately for on the island side listen, it's we are able to sell that hotel as well again, a benefit to our shareholders without having to pay any type of management termination fees.

Which is again accrues value to our shareholders. So really the price was a negotiated price it had to be a market price.

And we weren't going to sell it at a distressed price at all so.

Got it.

Any other hotels in the portfolio that may fit in.

Alternatively that you're kind of exploring now given given the strong pricing you saw in this transaction.

I mean listen I think in California for Us Anthony there might be an opportunity.

In Northern California at one of our four hotels the.

The state of California is really.

Especially southern California is real and San Diego, specifically has done this quite a few times over the past what I'd say five or so years. So they really have the the process. The mechanics to do these types of transactions transactions and to finance. These transactions importantly, so I think.

A lot of jurisdictions around the country are way behind in terms of how to make that work and how to how to execute that transaction I will say in given some again kind of an attribute to our portfolio with the bulk significant extended stay component is we have seen over the last six months or so.

Other you know.

Investors looking at our extended stay hotels potentially for other uses whether that's.

In this case Perm.

Permit supportive housing versus student housing.

In some urban locations so.

That's that's an interesting dynamic thats come about in the last six months and we're going to continue to be opportunistic about that if if the price is right and if we believe we can.

It's a good deal for our shareholders.

All right and then just one more in terms of the direct labor cost I know in the past you talked about.

The difficulty of finding labor given some of the employment support that was out there that's kind of obviously brought out in a lot of locations. What's your view on kind of on wage wage pressure in labor costs, given all the unemployment.

Unemployment.

Isn't that coming in and out.

And we will market changing what do you think you'll be able to start next year as things ramp up.

No more pricing will be big thing last year.

Yes, I think two different points two different answers to that question one is.

After the $600 a week supplement.

It was it was was.

And canceled or not cancelled, but ran out from the government in unemployment.

Yes, we've certainly seen more availability of labor and quite honestly it during that period it was tough.

To find unbelievably defined housekeepers or.

Lower rate per hour employees, because they were making more money sitting on their couch. So.

That has loosened up a little bit and will only continue to loosen I think as those government benefits start to tail off and obviously there is nothing at the moment.

Whether that is part of the next wave of.

Wave of support who knows but I think as the industry rebounds, we don't certainly feel that wage pressures are going to be what they were.

At the beginning of this year and over the last couple of years. So we do believe that you know.

We will be able to replace the labor at at some discount to what we had been paying pre.

Pre pandemic.

Okay. Thank you.

Ladies and gentlemen, we have reached the end of today's question and answer questions I would like to turn the call back.

Mitchell for closing remarks.

Well. Thank you everybody. We certainly appreciate as I said at the outset, you being on the call and we.

And maximizing our revpar during this period of time to get back negative cash burn to zero and ultimately of course substantially positive and we look forward to reporting those kind of positive developments as we move forward. Thanks a lot.

Thank you Bridget.

Conclude today's conference you may disconnect. Your lines at this time have a great evening.

Q3 2020 Chatham Lodging Trust Earnings Call

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