Chatham Lodging Trust (CLDT) Q3 2020 Earnings Report, Transcript and Summary

Greetings and welcome to the Chatham Lodging Trust Third Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] 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 and welcome to the Chatham Lodging Trust third quarter 2020 results conference call. Please note that many of our comments today are considered forward-looking statements as defined by federal securities laws. These statements are subject to risks and uncertainties, both known and unknown, as described in our most recent Form 10-K and other SEC filings. 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, on our website at chathamlodgingtrust.com. Now, to provide you with some insights into Chatham’s 2020 third 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. Let me turn 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 during these unusual times. The COVID-19 pandemic has been one of the most destructive events to the global and 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. For the quarter our RevPAR declined 61% to $58 well above our second quarter RevPAR of $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, September 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 it rates more in line with our overall portfolio ADRs. Since the beginning of August our occupancy is hovered around 55% and our ADR has remained around $110. Although, others saw 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 and Island hospitality. We had the highest absolute RevPAR of all lodging RETS in the second quarter and I'm confident that our third quarter RevPAR will be near the top. Additionally, we delivered GOP 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 which saw a third quarter occupancy of approximately 48% an ADR 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. Our 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 and our third quarter index was 137, 16% higher than our 2018 average and still a very impressive statistic given that most hotels have now reopened. The impressive gains are being driven by Island's outstanding direct sales efforts from its national, regional and local sales teams at the hotels as well as concentrated revenue management efforts ensuring that we're quickly adjusting to demand and modifying our race. One of the benefits of our platform is that as owners, we are able to participate in meetings if necessary on a daily basis with Island sales leaders and discuss opportunities and hear of recent sales developments. We've run 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 extended stay arena and having suites that are larger and with full kitchens has been really beneficial in winning business from today's travelers. Chatham has the highest percentage of extended stay rooms of all lodging REITs at almost 60% basically double the next highest lodging REIT. Additionally, more than 96% of Chatham's rooms are characterized as limited service rooms the highest percentage among public lodging REITs. 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 Homewood Suites. Second quarter 2020 average length of stay was up to five nights for our Homewoods and 5.9 for our Residence Inns. In the third quarter average length of stay was 3.9 nights for our Homewoods versus 2.7 last year and almost five nights for our Residence Inns versus 2.8 nights last year. Second daily demand trends continue to favor weekends and the contributions of the leisure traveler throughout the pandemic. Friday, Saturday occupancy during the third quarter was 59% with an ADR of $114 while for the remainder of the week occupancy is 50% at an ADR of $108; truly amazing that for a portfolio such as ours which historically has been reliant 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 a 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 will really be able to allow us to grow occupancy and REITs faster than most of our lodging peers and return to 2019 levels much sooner. This will translate into higher revenue and cash flow for our company and for our shareholders. 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 $350,000 per room. Not only does this transaction make 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. 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 this 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. 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 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 equity value for our shareholders. Our teams at Chatham and 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 the slow opening of Maine in New Hampshire until July due to CDC and local health 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 of both 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 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. 10 of our hotels had occupancy over 70% in the third quarter which compares only two hotels in the second quarter. We had no hotels during the quarter with occupancy under 15% as opposed to three hotels that met that metric in the second quarter. Some other standout performing hotels are markets for us, where our Fort Lauderdale Residents Inn that had occupancy of 97% in the quarter in our two Charleston Somerville hotels as well as Hultsville Mountain View and 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 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 of three major segments for our business at only about 10% of our production. Operationally we are very queued in on the expense side to maximize our margin and minimize cost creep while RevPAR levels are depressed and have 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 P&Ls. 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 increased materially. On March 1, we had almost 1,800 hotel level employees. At June 30, our hotel employee count was approximately 775 employees and as of September 30, we stand at about 850 employees. The fact that we've only increased our employee head count by about 75 employees over the past quarter is a testament to the commitment of our employees in the efficiency of our model. Looking into labor costs, our third quarter overall labor cost across all departments preoccupied 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 and local health guidelines we have rolled out some grab and grow or hybrid breakfast offerings and we don't anticipate commencing any evening social hours. As a result our complimentary costs have come down meaningfully and the quarter on a preoccupied room basis costs decreased from a little over $4 per occupied room to a $1.15, 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 structure without significantly impacting our operations and guest experience. Our G&A operating expenses are down approximately $600,000 or 33% in the quarter, but on a cost per occupied room basis are up slightly from 390 to 420 per occupied room. And lastly on a preoccupied room basis, our repairs and maintenance costs are down again about 33% 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 in 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 head count by approximately 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 Resident Inn in New Rochelle New York. We expect to spend about $1.7 million on all remaining CapEx in the fourth quarter other than our Warner Center development which is moving along quickly. 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 supply to approach 2% after the financial crisis and obviously as we sit here in the midst of the pandemic, 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. Chatham's Q3 2020 RevPAR was $58 which reflects a 74% increase from our Q2 RevPAR of $33. Through our significant efforts to contain cost, we were able to generate Q3 hotel EBITDA margin of 17.9% and a GOP 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 versus negative 3.3 million in Q2, 2020. Chatham's improving operating performance in Q3 significantly reduced our cash burn. In Q3 Chatham's cash flow before capital which represents hotel EBITDA less corporate G&A interest expense and principal amortization was minus $5.1 million versus minus $12.8 million in Q2. In the month of September, Chatham's monthly cash burn was only $1.6 million dollars and that is after approximately $750,000 of CMBS principal amortization. Chatham has a strong balance sheet that positions us well to whether 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 escrowed 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 of the facility. When covenants begin to be tested again starting in June 2021, EBITDA and NOI figures used for the covenants will be calculated on an annualized basis through the end of 2021. At September 30, 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 burden 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. 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 or revolving credit facility. The construction loan has a four-year maturity with two six-month extension options and is initially priced at LIBOR plus 750. Once the property achieves a 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. Chatham's 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 is a single $12.7 million non-recourse mortgage loan that matures in September 2021. After that the next debt maturity we have is 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 over recovery and 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 we will be conducting a question-and-answer session. [Operator Instructions] [Audio Gap]

COVID cases and then as you look at to November, December the bit of a decline that you are expecting there is that [audio gap]

--- is purely attributable when you look at our numbers [audio gap] for the weekends to just a little less leisure travel period. We have been really benefited by our Portland Maine and Portsmouth New Hampshire hotels especially 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 and December I'll leave that to Dennis or Jeremy but I think that's purely seasonality. The increase in COVID 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 the leisure dynamic, little colder weather. So they're not out as much on the weekends traveling like that but Dennis if you want to add anything to that.

No. I think that's right.

Well, I appreciate that.

All right. Thanks and then there's on the asset sales, could you talk about what the performance at that hotel has been like throughout the pandemic and then is this hit from an asset sales standpoint or are you looking to sell additional hotels what should we expect from that standpoint?

I mean, listen we don't have anything else Ari for sale at the moment in a brokered transaction. I think as you saw in the release we especially with respect to this opportunity this was something ironically that we had 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 interest from the housing commission. And listen I think we were quick to look at the opportunity, quick to negotiate I think a 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 Gas Lamp which is a Residence Inn, which I think should benefit a little bit, should benefit in terms of increased occupancy as our customers because they're 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 performed pretty well. In 2019, NOI was about $4.3 million. 2020, NOI is projected to be around 2.6, trailing 12 NOI is about 2.4 million and if you just look at the quarter on an occupancy and ADR basis, occupancy was about 72% at a rate of $152 and 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 pandemic, but also to provide capital that we can hopefully use once things begin to come back and stabilize for some distressed acquisitions that we can get much more upside on.

Got it. Appreciate the color.

Thank you.

Our next question comes from the line of Bryan Maher with B Riley Security. You may proceed with your question.

Great and good morning and quite frankly pretty good quarter, all things considered. So congrats on that.

Thank you, Bryan. Appreciate it.

When we look at this sale and I hear you that there is 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 or starting to see or being approached by lenders who are taking back assets or CMBS servicers, etcetera 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?

Yes Bryan, 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 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 are offering some assets up that otherwise they certainly wouldn't be selling in a non-COVID 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? Look we 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 anytime soon until we get a little better visibility on where RevPAR is heading in the recovery. But I do think that A, if it's a select servicer, extended stay hotel depending on the market and how well it's being run, the negative cash burn is going to be pretty insignificant 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 plugged in with the brand and when you think about what's going on with brand standards and then cutting you some slack and everybody getting cuts and slack during the pandemic. How do you think about that when we look at 2021/2022 and do you think that there is going to be permanent changes there that can positively impact margins going forward?

Yes. I'll take this and then Dennis likes to chime in on this one but 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 and in our hotels. It's very insignificant F&B, but the complementary breakfast offerings and the complimentary cocktail hour and offering that goes around that both in the Residence brand and the Homewood brands. I think on that front that evening hour probably goes away all together 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 that right back to where it was before. We'll fight it. The rest of the franchisee community will fight it and we'll see how far they get with that.

Yes. I mean, I think the only thing Bryan I think the only thing I would add to that is, as Jeff talked about on the complimentary stuff I think in 2019, it kind of a little over $4 an occupied room for us that's about $8 million 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 couple million bucks of EBITDA which is encouraging, not just on the complimentary side. When you look at rooms labor and everything like that that we've harped on now for probably 4, 5, 6, 7, 8 quarters I don't know, we spent about, I think we spent roughly $65 million on labor costs 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 either you're not servicing a room as much or you're 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 save 5% of that, that's again another couple million dollars of EBITDA. So we think we will be able to be a little bit more profitable on the other side.

Yes, housekeeping is Bryan just to pick up on that and then we'll leave it. The housekeeping charges I think for stay over guests 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 in 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 help us push that margin up even higher than other types of hotels.

Okay. Thanks Jeff.

Our next question comes from the line of Tyler Batory with Janney Capital Markets. You may proceed with your question.

Thank you. Good morning. To follow up on some of the other questions that have already been asked here. And I'm curious to go back to that length of stay statistic that you guys cited in the opening remarks. Leisure traveler what's driving that average length of stay higher and kind of how impactful was that to your margins in the third quarter here?

Yes. 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 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 stay, I mean we've got several hotels whether that's Anaheim, Fort Lauderdale a couple in the northeast where we've got 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 in Residence Inn there again longer term guests. We have some student housing at 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 fact that we're not in these rooms 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 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. That's a good segue into my next line of questioning here. You went through some of the numbers in terms of the employees that you have working at the property level. At what point do you need to start adding more, I mean is it 60% occupancy, is it 65, I'm just kind of curious how you're thinking about that progression going forward?

Yes. I mean I think as if you looked at the data points going from kind of 775 to 850 between June and September, 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 60s and especially up to 70% you're going to start bringing back more people. 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're definitely not going to be bringing back the same number of employees as you would have 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 ADR at some of these properties in your markets as they are reopening?

Yes. I think to talk about the first one I don't know. I can come back to you Tyler on percentage of rooms that are still closed versus at September 30th versus June 30th 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 rates is as hotels have opened I think originally you heard from some of our peers and just the industry that they were opening and they were maintaining rates is comparable to last year or higher than last year which I think is quite honestly a fairly BS comment because they were really only talking about having their hotels open on the weekends when the leisure traveler was there. To be open seven days a week and to be open 30 days a month or every day and all that kind of stuff, the rates 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 the $110 range for the last 90 days, really 120 days. 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. Nice quarter by the way as well. Thank you.

Thank you.

[Operator Instructions] Our next question comes from the line of Anthony Powell from Barclays. You may proceed with your question.

Hi, good morning. The question on the sale price, the 6.5% cap rate which is pretty good. How did you and the buyer get to that price?

I think it was a negotiation obviously. We were firm that we were 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 I think for us, it was a fair price I think for both parties. I think for us we're very pleased with the 6.5 cap on a 2019 number that was very strong. I think the asset condition was very helpful in maintaining price integrity. We had just renovated it a few years ago. Its current in terms of every need that the San Diego Housing Commission was needing for its permanent supportive housing target. So I think, all in all, there is going to be that all benefited in terms of price and the fact that we unfortunately 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 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.

Got it. And are there any other hotels in your portfolio that may fit this kind of alternative need that you're kind of exploring now given the strong pricing you saw on this transaction?

I mean listen I think in California for us Anthony there might be an opportunity in Northern California, one of our four hotels. The State of California is really especially Southern California 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 process, the mechanics to do these types of 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 execute that transaction. I will say and given some, again a 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 looking at our extended stay hotels potentially for other uses whether that's in this case permanent supportive housing versus student housing in some urban locations. So that's an interesting dynamic that's come about in the last six months and we're going to continue to be opportunistic about that if the price is right and if we believe we can, it's a good deal for our shareholders.

All right and maybe one more in terms of, I guess labor cost. I know in the past you've talked about the difficulty of finding labor given some of the employment support that was out there. That's kind of obviously run out in a lot of locations. What's your view on kind of this on wage pressure and labor cost given all the unemployment assistance that's coming in and out and just the labor markets changing do you think you'll be able to staff next year as things ramp up at lower prices that you’ve been able pay last year?

Yes. I think two different points, two different answers to that question. One is after the $600 a week supplement was getting canceled or not canceled, but it ran out from the government unemployment. We've certainly seen more availability of labor and quite honestly during that period it was tough to find, unbelievably to find 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 and I think as those government benefits start to tail off and obviously there's nothing at the moment whether that is part of the next 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 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 this call back over to Mr. Jeff Fisher for closing remarks.

Well, thank you everybody. We certainly appreciate as I said at the outset, you being on the call and we 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 that 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 for joining today. This concludes today's conference. You may disconnect your lines at this time. Have a great rest of your evening.