Braemar Hotels & Resorts Inc. (BHR) Q3 2020 Earnings Report, Transcript and Summary

Greetings, and welcome to the Braemar Hotels & Resorts, Inc. Third Quarter 2020 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Jordan Jennings, for Braemar. Please go ahead, Ms. Jennings.

Good morning, and welcome to today's call to review results for Braemar Hotels & Resorts for the third quarter of 2020 and to update you on recent developments. On the call today will be Richard Stockton, President and Chief Executive Officer; Deric Eubanks, Chief Financial Officer; and Jeremy Welter, Chief Operating Officer. The results as well as notice of the accessibility of this conference call on a listen-only basis over the Internet were distributed yesterday in a press release. At this time, let me remind you that certain statements and assumptions in this conference call contain or are based upon forward-looking information and are being made pursuant to the safe harbor provisions of the federal securities regulations. Such forward-looking statements are subject to numerous assumptions, uncertainties and known or unknown risks, which could cause actual results to differ materially from those anticipated. These factors are more fully discussed in the company's filings with the Securities and Exchange Commission. The forward-looking statements included in this conference call are only made as of the date of this call, and the company is not obligated to publicly update or revise them. Statements made during this call do not constitute an offer to sell or a solicitation of an offer to buy any securities. Securities will be offered only by means of a registration statement and prospectus, which can be found at www.sec.gov. In addition, certain terms used in this call are non-GAAP financial measures. Reconciliations of which are provided in the company's earnings release and accompanying tables or schedules, which have been filed on Form 8-K with the SEC on October 28, 2020, and may also be accessed through the company's website at www.bhrreit.com. Each listener is encouraged to review those reconciliations provided in the earnings release together with all other information provided in the release. I will now turn the call over to Richard Stockton. Please go ahead, Richard.

Good morning. Welcome to our third quarter 2020 earnings conference call. I will begin by providing an overview of our business and an update on our portfolio, which includes our hotels achieving positive hotel EBITDA for the quarter. And all of our hotels now being opened, including the recently rebranded Clancy hotel in San Francisco. After that, Deric will provide a review of our financial results, and Jeremy will provide an update on our asset management activity. Afterwards, we will open the call for Q&A. The COVID-19 pandemic has created both social and economic disruption on an unprecedented level and has created a volatile landscape throughout the hospitality industry. As I have said previously, this has been an extraordinary period for all of us, and our entire leadership team has been steadfast in our commitment to protect all of our stakeholders during this unprecedented time. A few objectives have continued to guide us. The health and well-being of the employees at our hotels, our hotel guests and the communities in which we operate have been a top priority, and we have taken several preventative measures to keep them safe. As state home orders were implemented, we quickly adapted to the restrictions and challenges affecting our properties and adjusted the staffing model at our hotels while reducing other operating expenses in an effort to preserve cash and minimize near-term losses. The last time we spoke, the vast majority of our portfolio has suspended operations for a significant portion of the second quarter. Thus, I am extremely pleased to report that since then, all of our properties have reopened and we reached an important milestone by achieving positive hotel EBITDA across our portfolio during the quarter, driven by strong occupancy performance of over 48% at our resort properties. Upon the bulk of our properties reopening in July, we achieved portfolio-wide occupancy of almost 30% and hovered around that level for August and September, while our ADR declined as a result of adding lower-rated room inventory to the reopened portfolio. While leisure demand is holding up nicely, particularly on weekends, any significant uptick in RevPAR performance is likely to rely on the recovery of corporate transient demand and ultimately, group demand as a result of widespread vaccination or achieving herd immunity. Many of our hotels are in drive-to leisure markets and have been well positioned to benefit from the resurgence of leisure demand in recent months. In total, 8 of our 13 hotels are considered resort destinations. These hotels include the Ritz-Carlton Sarasota, Bardessono, Hotel Yountville, Ritz-Carlton Lake Tahoe, Pier House Resort, Park Hyatt Beaver Creek, Hilton La Jolla Torrey Pines and Ritz-Carlton St. Thomas. We are pleased to report that this thesis has played out just as we expected as all 8 of these properties had positive EBITDA for the quarter. While it is still early in the reopening process and the impact of the virus is still unpredictable, it is clear from the feedback we are hearing that guests are excited to be traveling again. With all of our hotels now reopened to the public, we continue to prioritize the health and safety of our guests and staff, and we are being thoughtful, deliberate and flexible as our hotels resume operations. To enhance guest safety, our properties have instituted stringent safety measures and protocols consistent with evolving best practice recommendations regarding COVID-19, ranging from enhanced hygiene standards to keyless check-in and electrostatic sprayers to protect guests. Additionally, in the near term, we have specific plans to contain expenses across the portfolio as we continue to navigate the reopening process. We are offering optional housekeeping services at some properties for stay overs. We are also eliminating van transportation, airport shuttle service, valet parking services, turndown service and all amenities that exceed brand standards. We're also suspending some services at concierge, lounges and clubs, and all spas and kids clubs. Our asset management efforts have been relentless and have positioned us well for the continued ramp-up in operations that we now anticipate. We are also excited about the recent opening of The Clancy in early October, located in San Francisco's vibrant SoMa market. The former Courtyard San Francisco Downtown underwent a rebranding and renovation in excess of $30 million to create The Clancy. It joins Marriott International's Autograph Collection Hotels, and the property features 410 guestrooms, over 11,000 square feet of modern meeting space throughout 16 event rooms. While construction restrictions delayed The Clancy's reopening by several months, and we expect that occupancy levels will be moderately low given COVID-19's negative impact on group and business transient demand, we look forward to realizing enhanced financial performance from this property over the long-term as a result of the rebranding and renovation. While we continue to face the challenges of the pandemic and the uncertainties that go with it, we have taken proactive and aggressive actions to protect and enhance our corporate liquidity. This included cutting expenses at the corporate level and significantly reducing our planned CapEx spend for the year. We will continue to preserve cash until we have more clarity on the recovery and the direction of the economy. All in, we estimate that we have reduced our run rate, corporate G&A and reimbursable expenses under our advisory agreement by approximately 25%. As previously discussed, we also closed on an amendment to our corporate credit facility with a paydown of $10 million the amendment converted the $75 million corporate credit facility into a $65 million term loan with the same maturity date of October 25, 2022. During the quarter, we also finalized discussions with our property level lenders and now have no defaults across our borrowings. Our intention is to remain current on these obligations going forward. We successfully navigated through a very challenging operating environment during this quarter. Our balance sheet is in good shape, and I believe we are set up very well for the ultimate recovery in our industry. I will now turn the call over to Deric.

Thanks, Richard. During the third quarter, we settled our insurance claim with our carriers related to the Ritz-Carlton St. Thomas for a total of $123.5 million, of which $42.3 million related to business interruption income that had been previously recognized in our financial statements. This was a significant claim that resulted in a positive outcome for the hotel and its associates and demonstrated the great working relationship our risk management team has with our insurance carriers. For the third quarter of 2020, we reported a net loss attributable to common stockholders of $18.7 million or $0.55 per diluted share. For the quarter, we reported AFFO per diluted share of negative $0.15. Adjusted EBITDAre for the quarter was negative $3.1 million. At quarter's end, we had total assets of $1.7 billion. We had $1.1 billion of mortgage loans, of which $49 million related to our joint venture partner share of the loan on the Capital Hilton and Hilton La Jolla Torrey Pines. Our total combined loans had a blended average interest rate of 2.5%. Our loans are entirely floating rate. As of the end of the third quarter, we had approximately 54% net debt to gross assets. We ended the quarter with cash and cash equivalents of $88.2 million and restricted cash of $34.7 million. The vast majority of that restricted cash is comprised of lender and manager held reserve accounts. At the end of the quarter, we also had $14.3 million and due from third-party hotel managers. This represents cash held by one of our property managers, which is also available to fund hotel operating costs. As Richard mentioned, we have been and continue to work with our property managers and lenders in order to utilize these lender and manager held reserves to fund operating shortfalls at our hotels. To date, we have signed forbearance agreements on 6 loans, including the mortgage loans on the Hotel Yountville, Bardessono Hotel, Ritz-Carlton Lake Tahoe, Ritz-Carlton Sarasota, Pier House Resort, Capital Hilton and Hilton La Jolla Torrey Pines. The agreements typically allow the company to defer interest on the loans for a period of up to 6 months subject to certain conditions. The forbearance agreements also allow us to utilize lender and manager held reserve accounts, which are included in restricted cash on our balance sheet in order to fund the operating shortfalls at the hotels. We also signed an FF&E use agreement on the 4 hotel portfolio loan that includes the Sofitel Chicago, Marriott Seattle Waterfront, The Notary Hotel and The Clancy. This agreement allows us to use the lender and manager held reserve accounts to fund operating shortfalls. This agreement also provides for the exercise of the first of the loan's 5 1-year extensions. With these agreements in place, our balance sheet is in good shape, we are now out of default on all of our loans and our present intention is to remain current on these obligations going forward. As we highlighted with our positive hotel EBITDA for the quarter, our monthly cash burn at our hotels has been reduced to close to 0. Interest expense, corporate G&A, including advisory fees, and preferred dividends total approximately $5 million per month. With all of our hotels currently open and operating, $88 million of cash and cash equivalents at the end of the quarter, and based on realistic yet conservative assumptions for future hotel operations, we believe that we have sufficient liquidity to outlast the COVID-related downturn in our business. As of September 30, 2020, our portfolio consisted of 13 hotels with 3,487 net rooms. Our share count currently stands at 41.1 million fully diluted shares outstanding, which is comprised of 36.6 million shares of common stock and 4.5 million OP units. In our financial results, we include approximately 6.7 million shares in our fully diluted share count associated with our Series B convertible preferred stock. This concludes our financial review. I'd now like to turn it over to Jeremy to discuss our asset management activities for the quarter.

Thank you, Deric. Comparable RevPAR for our portfolio decreased 65.6% during the third quarter. Impressively, hotel EBITDA flow-through was 55%. As the recovery in the hospitality industry continues to take place, we are tracking the daily performance of each asset. Generally, we are seeing significantly more demand at our resort hotels, with third quarter comparable RevPAR down 37%, which is good compared to our urban assets, which are down 91%. Each of our resort assets had positive EBITDA for the third quarter. In aggregate, they generated over $6.3 million in hotel EBITDA. As previously noted, our resort hotels have performed quite well during the pandemic. A great example of this is the Ritz-Carlton Sarasota, which has been the quickest to recover. For the third quarter, comparable RevPAR decreased 3.7% compared to the prior year quarter. Hotel EBITDA for the third quarter was up over 500% compared to the prior year period. This is largely a function of an increase in transient demand and the asset management team digging in to ensure that every possible expense has been eliminated. Some of those include: temporarily eliminating concierge services; ending turndown service; scaling back on sales and staffing by approximately 50%; and reducing expenses related to managing the golf course. Another asset that has been strong -- seeing strong growth in demand is Ritz-Carlton St. Thomas. After reopening the hotel in June, it ran 63% occupancy in July. It was seeing demand growth in August when the second state home order was issued. The hotel reopened again, September 19. Even with having been closed for 25 days, the hotel was able to produce positive hotel EBITDA of about $100,000 for the quarter. This was possible because of the expense control measures that we have taken and the realization of pent-up leisure demand. To round out our resort portfolio review for the quarter, the Pier House resort attained 57% occupancy. While our California properties, Bardessono, Hotel Yountville, Hilton La Jolla Torrey Pines and the Ritz-Carlton Lake Tahoe collectively achieved 50% occupancy. Lastly, the Park Hyatt Beaver Creek had 35% occupancy for the quarter. Despite the wildfires occurring in September and early October, the California assets have performed relatively well. That said, we have had some impact on our portfolio due to the fires. Specifically, our Yountville hotels experienced some displacement. At Bardessono, the fires cost about $1.1 million in cancellation revenue. At Hotel Yountville, we have seen about $900,000 in canceled revenue. With the fires now subsiding and air quality returning to normal, these assets have resumed the rebound. As Richard mentioned, this quarter welcome the completion of our strategic repositioning of the Courtyard San Francisco Downtown into The Clancy, joining Marriott's Autograph Collection. The entire renovation took a little longer than 1.5 years to complete with an investment of more than $30 million. As part of the conversion, we completely reconfigured the hotel's entrants and lobby to create a more open and inviting sense of arrival. In doing so, we constructed a new centralized bar with lounge seating, which flows into the newly renovated restaurant and cafe. As California's restrictions are lifted, we expect this property to experience a rapid ramp up. I will now turn to capital investment. In 2019, we invested heavily in our portfolio to enhance our competitive positioning. These investments included the conversion of the Courtyard Philadelphia Downtown to The Notary Hotel, the completion of the 3-suite presidential villa at the Bardessono Hotel and value-add projects during the rebuild of the Ritz-Carlton St. Thomas. These initiatives have allowed us to get by with considerably less spending on capital expenditures than usual during the COVID-19 pandemic. In 2020, despite curtailing our capital expenditures significantly, we have completed the conversion of the Courtyard San Francisco Downtown to The Clancy as well as completing the renovation of the guestrooms at the Pier House Resort in Key West. In total, we expect to spend approximately $25 million on capital expenditures in 2020. Lastly, something worth pointing out is how well our portfolio has maintained ADR this year. Year-to-date, the Park Hyatt Beaver Creek is up 29%, Ritz-Carlton Lake Tahoe is up 6%, Ritz-Carlton Sarasota is up 4% and The Clancy is up about 1.4% over 2019. Overall, our portfolio is up 10.5% in ADR this year compared to the prior year period. In fact, with rates 36% higher than pre-Irma levels, Ritz-Carlton St. Thomas is forecasted to generate its highest October rate on record. This illustrates the caliber of our assets and the potential that our portfolio has moving forward as we see demand continue to come back. I will now turn the call back over to Richard for final remarks.

Thank you, Jeremy. In summary, our focus during the quarter was on the reopening of our entire portfolio of hotels. This sets us up nicely for a slow but steady recovery in our financial results. We have taken decisive actions to navigate the near-term challenges of this crisis. And while we cannot predict the trajectory of the pandemic, we are encouraged as we look ahead that we have in place the appropriate runway to get back to positive cash flow. I am proud of our efforts to protect our assets and maintain financial flexibility to position us for future success. We look forward to updating you on our progress as we move through the remainder of 2020 and into the New Year. This concludes our prepared remarks, and we will now open the call up for Q&A.

[Operator Instructions] The first question is from Tyler Batory, Janney Capital Markets.

This is Jonathan on for Tyler. First one from me. I was wondering if you guys could provide some color on the demand trends that you've seen post Labor Day and in October. Has there been any noticeable shifts in recent weeks with the recent spikes in COVID cases?

Yes, sure. I'll say there seems to be a commonly held belief that post Labor Day, things would fall off. And as kids went back-to-school and people weren't able to travel as much, particularly to generate that leisure demand. I will tell you, with our portfolio and what we're seeing, that is not the case. October is tracking several occupancy points ahead of September, and it's up a few percent in ADR as well. So our October is shaping up very nicely. As I look forward at our bookings for November and December, the occupancy is also building very nicely. Rate in December is very strong. And then we get to January. And January, as part of the first quarter, seasonally, is always our best quarter. And even January is shaping up well. So we're benefiting from a couple of different trends going into the first quarter. One is the inauguration. So we have almost 30% occupancy on the books already for Capital Hilton. But then we also have, as you know, some resorts that are benefiting from the snow and then some resorts that are benefiting from snowbirds traveling south for the sun. So the trends are favorable. I do think in order for us to get up to portfolio-wide occupancy of 50% or so, which is probably what we need to achieve corporate level breakeven, that will take a little bit more time. But I can tell you that things are certainly look to be heading in the right direction.

That's great. I appreciate that color. And then ADR in the quarter was up 7%, which was quite good and surprising to us. And I know Jeremy gave some comments in his remarks, but could you guys just provide some additional color on your revenue management strategy and the overall rate environment you guys are seeing in your markets?

Yes. I can do that. I mean we're holding firm on rate. And the reason why is because it's not a question of -- with our -- the quality of our assets. It's not price sensitivity. It's, are you going to travel or not? And if you're going to travel, we believe our portfolio is the type of destinations that folks want to travel to and are willing to pay for. And so we've been holding up and pushing rate as much as we can. And I don't think that's really hurt our occupancy, but -- because we still see the demand coming back and not as quickly as we want, but I do think that there's just a level of discipline that we've instilled across our teams and revenue managers just to hold firm on rate and push where we can.

Okay. That's very helpful. And then last one for me, switching gears to St. Thomas, and I know this may be difficult to answer, given the island closure. But can you just talk about what you've seen there and how performance has come in versus expectations given the [ pricey ] nature of the island?

Yes. Well, as you know, the island is reopened now. In fact, I personally visited the property a couple of weeks ago. And I'll tell you, it looks absolutely stunning. The renovation that we've undertaken there has really turned out very well. And all of our guests' comments and reviews are extremely, extremely positive. With that better product, and frankly, with less supply in that market and the fact that Americans, I think, feel a little bit more comfortable traveling there and are able to travel there versus international destinations. We're benefiting greatly. And if you look at the ADR for October, it's up over 30% versus the premium levels. And that's a result of the new product, the restricted supply available and this pent up leisure demand, which I think is a little less elastic, frankly, in the luxury resort space than maybe other chain scale segments. And we're capitalizing on that.

Yes. And what I'd add to that is prior to having to shut it down for the second time, we were running, I believe, in the high 70s with rate of close to $800. So we were obviously very disappointed that we had to close the resort down a second time. So as you pointed out, there's just a lot of noise in the numbers. And the fact that we were able to generate positive hotel EBITDA was a huge accomplishment. I mean just if you think about the costs associated with closing the hotel and then reopening it again. Then we got to bring back people early to train them and retrain them. So it was a great result that we generated a positive hotel EBITDA in light of all of that. And I'd also add that even before that, because -- not only because folks feel -- people would feel more comfortable with maybe traveling to a U.S. destination, we had a lot of first-time travelers to that resort. Tons of them. And that was because a lot of the other Caribbean resorts were close to U.S. visitors. And so where folks may have typically gone to another Ritz-Carlton resort somewhere else, and even in locations like California, they chose to give St. Thomas a try. And that was a huge opportunity for us because we have all this new product, fresh product, which I think is nice as almost any resort in the Caribbean. And so we do believe that, that is going to be sustainable in terms of recapturing those first time guests on a go-forward basis. So I'd be surprised if this property does not well outperform what we would have anticipated coming out of the recovery of reopening it and out of COVID.

The next question is from Bryan Maher, B. Riley Securities.

Just a point of clarity on the St. Thomas commentary, which I appreciate. Did I hear you say that it was running high 70s occupancy in an $800 a night rate?

Yes. Right before we shut it down, yes. So it was -- and that was -- it's off my recollection because we were in conversations with the team. So it was -- yes, it was performing very, very well.

So that would have been July, which is a strong month. Yes.

Okay. And what exactly triggered that shutdown? And what is the likelihood that, that could happen again in your view?

Yes. We actually -- I had a call with the governor. And I think that he was kind of forced to do it. It was not because of U.S. travelers to the Virgin Islands. It was mainly the locals not maintaining social distancing. So it was a pretty severe shutdown that he did over a period of 3 to 4 weeks. But then also, part of that is just because, as you can imagine, a lot of restaurants and bars or just SMB outlets in general, they can be on the beach, and they don't have like the sanitary conditions like the Ritz-Carlton would have in terms of just the heat that you apply to cleaning materials. And so they went to plastic wares and things like that as a requirement in the island. And so there are just a lot of initiatives that the government took to try to curtail the spread of the virus. But the other thing was testing. And so he had a threshold on a testing positivity rate that was a requirement to reopen. And I do think that part of that, with the wide spread of testing, more people being tested is going to result in a lower positivity rate. And so I think that you'll see that it's going to be a higher hurdle for them to have to shut it down in the future. So there's an additional preparation. And they've done a great job. I'll tell you, like when you go in and you visit the island, to go through, you've got to have a negative test, and I think that helps more travelers feel safe to visit the island. And they've done a really good job of the temperature checks at the airport to get people in very quickly. So if anything, I can bend the way that they -- we didn't like the fact that they had to shut it down. But I think the actions that the government taking place and the governor, I think, have resulted probably folks feeling safer to travel to the island as well.

Got it. And then shifting gears to your urban hotels, the Chicago Sofitel, the Seattle Marriott, The Notary, the Capital Hilton, these are pretty aggressive RevPAR declines. What's the thought process at Braemar to deal with that? Is it to just kind of tough it out and make the payments and cut cost as much as you can and wait for the recovery? Or is there a plan B that you're thinking about on some of those assets?

Yes. Well, the decision to reopen our assets was when we could lose as much money being open as we were losing being closed. And that still applies, although it is less relevant now because those assets, you're right, they are struggling because we don't have corporate transient, we don't have any group business to speak of. But they are generating some leisure demand, particularly on weekends. And so there is -- if you look at something like the Sofitel, which had almost 30% occupancy for the quarter, that's primarily weekend staycations from the Chicago suburbs. And then some of the other properties are benefiting from that as well. So clearly, our path now is to hold firm and continue to move them up in terms of RevPAR and profitability over time. And I think slowly, people will begin to travel more for business, and we'll be able to book some smaller groups. We also benefit from some airline crews on a couple of those assets, and that's providing some base of business as well. So.

Yes. And I'd say we've rotated into segments that we probably wouldn't have otherwise taken or wouldn't have otherwise taken in a stronger market. But we're trying to keep that as short term as possible just to mitigate our downside. But as you look at each one of those properties, individually, they're incredible assets. There's still incredible markets over a long sustainable time period, and they're great locations within those markets. And I encourage you, Bryan, to go visit The Clancy because when you look at -- we've taken a courtyard and converted it to an incredible hotel repositioning, I do expect that property to perform incredibly, incredibly well given its location to a tremendous amount of demand generators within the San Francisco market.

And also, Bryan, you talked about funding the losses in -- I think it's all of the cases of our urban properties. It is, in fact, we have access to FF&E reserves to fund operating losses. And so that's very helpful right now. And we're expecting that they will be sufficient to get us through to the other side.

We have a question from Michael Bellisario, Baird.

Richard, a question for you. I know it's probably a little early, but you're clearly on a path to being in a better cash flow position soon. But was hoping you could maybe share your thoughts on acquisitions, your appetite for growing the portfolio, what you're seeing out there today and how you're positioning yourself to grow the portfolio eventually.

Yes. It's a fair question. We are starting to think about it, and I am tracking all the transactions that we're seeing, which I know you know is very few and there are some interesting trends. There are some hotels that are trading at significant discounts on a per key basis than what you would have seen a year ago. And in some cases, even more than the kind of 25%. I think people generally believe that values are down. And so that speak to our interest. We're not seeing it for properties in the luxury segment. And I don't know if that's a function of it, maybe just being too early, the circumstances haven't risen yet. But we are seeing it in the lower rate of chain scales. As far as Braemar's appetite is concerned, right now we are cash flow negative and preserving our liquidity is a paramount importance. So you won't see us using our cash opportunistically until we get at least back to cash flow positive on a corporate level. So our view is we just don't know when that is going to happen precisely. There's too many factors that make that an unknown. So we have to be solidly in the black on a corporate level, on a monthly cash flow level before we would ever consider a new acquisition. So that's how we think about new acquisitions. So for the moment, we're studying the market. We're aware of kind of what's out there and how things are trading. But we're not bidding on anything, that's for sure.

[Operator Instructions] We have a question from Chris Woronka, Deutsche Bank.

You mentioned a lot of initiatives you've taken at the property level to kind of maintain margins and generate positive EBITDA and I suspect some of that is because you've had a greater mix of leisure demand. I mean at what point does some of that, at a certain rate or a certain occupancy level, at what point do you have to pull back on some of those more aggressive closures of things like lounges and things like that?

Yes. I mean we've had the demand. We've had the lounges open. And so -- and Ritz Carlton's where we can sell access to lounges as you get premium rate. We've kept those open or have reopened them, I guess. But I think that a lot of the cost cuts are sustainable for an extended period of time because we've broken down the way we operate our hotels and rebuild the operating model. And I think that what we've been able to accomplish in partnership with Marriott and Ritz-Carlton is phenomenal. I mean you can look at the results of Sarasota and with the profitability being up significantly in the third quarter with the RevPAR, albeit slight RevPAR decline. Now that's not going to be -- you're not going to see those results for -- that impressive, but I think you will see incredible flow-throughs coming out of this. And I think we'll also have, hopefully, some property tax declines in our portfolio next year just because of what we've experienced. And so we'll be very aggressive on that front as well. So I think that it's in an extended period of time where we were able to drive higher margins. And in terms of the mix, yes, the ADR may come down just because we'll have more group and lower-rated business, but that doesn't mean that at the rates that we're still going to offer them, we'll still maintain some pretty high margins.

Yes. I'd add to that. I'd say our resort portfolio, the amenities are essentially available, but there is a call made on the ground on almost a daily basis. If there's not sufficient occupancy on a particular day, they may not open a certain food and beverage outlet or the concierge club or the fitness. But the weekends have been so strong that I think if you visit any of our resort hotels, by and large, most of it is open. Some exceptions. The urban properties aren't anywhere near the occupancy necessary to open up food and beverage outlets and clubs, et cetera. And I think that they would need to significantly move up to at least kind of 50% occupancy, I think, to justify full operations. So again, it's case by case, and in some cases, day by day. But you'll see the resort portfolio operating, as you'd expect, but they're urban much less so. And it remains to be seen when we achieve that level of occupancy, and that's going to be based on, as I said in my opening comments, vaccinations and the resurgence of business travel. So that's what's going to trigger it.

Okay. That's helpful. And I know kind of pre-COVID, you guys had a process going on with the Chicago Sofitel. Now numbers are really disjointed. Can you give us an update on where that stands and what -- coming out of this, what -- do you go back to where you were? Are you negotiating or what's going on?

Yes. So that's the subject of an ongoing legal dispute. So I'm not able to give any more color on it today.

Ladies and gentlemen, this concludes today's question-and-answer session. I'd like to turn the call back over to management for closing remarks.

Okay. Thank you, everybody, for joining us on our third quarter earnings call, and we look forward to speaking with you again on our next call.

This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.