Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Chatham Lodging Trust (NYSE:CLDT)
Q3 2020 Earnings Call
Oct 29, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Chatham Lodging Trust Third Quarter 2020 Financial Results Conference Call. [Operator Instructions]

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.

Chris Daly -- President

Thank you, Laura. Good morning, everyone. 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 some insight on 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 and Chief Financial Officer.

Let me turn the session over to Jeff Fisher. Jeff?

Jeffrey H. Fisher -- Chairman Of The Board, Chief Executive Officer And President

Thanks, Chris. Good morning, everyone. First and foremost, thank you for your interest in Chatham, and we sincerely appreciate your participation there in 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 was 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 our lodging REITs 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 third quarter occupancy of approximately 48% and 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 rates.

One of the benefits of our platform is that as owners were able to participate in meetings, if necessary, on a daily basis, with 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 2/3 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. 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, Residents 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 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. 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 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 will really be able to allow us to grow occupancy and rates 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 we use our third quarter cash burn as a basis. Our efficient operating model, along with the strengthened balance sheet has a meaningful impact, I think, on our long-term equity value for our shareholders. Our teams at Chatham and Island had 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.

Dennis M. Craven -- Executive Vice President And Chief Operating Officer

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. Despite the slow opening of Maine and 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 toward the end of July. Two of our other key markets, both San Diego and L.A., obviously, both 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 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 to 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 Residence Inn that had occupancy of 97% in the quarter, in our two Charleston Summerville hotels as well as Holtsville 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 to 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 the 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 margins 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 headcount 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 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 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. So as a result, our complimentary costs have come down meaningfully in the quarter on a per occupied room basis, cost decreased from a little over $4 per occupied room to $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 $3.90 to $4.20 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 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, had to reduce our headcount 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 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 the 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, this -- the impact on the industry is going to be much worse.

With that, I'm going to turn it over to Jeremy.

Jeremy Wegner -- Senior Vice President And Chief Financial Officer

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 costs, 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, and that is after approximately $750,000 of CMBS principal amortization. Chatham has a strong balance sheet that 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 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 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 costs 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 nonrecourse mortgage loan that matures in September 2021. After that, the next debt maturity we have is for our credit facility in March 2022, but 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 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.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Aryeh Klein with BMO Capital Markets. You may proceed with your question.

Aryeh Klein -- BMO Capital Markets -- Analyst

Thanks, and 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 would you say is seasonality versus maybe the impact of rising COVID cases? And then as you look ahead to November, December, the decline -- the bit of a decline that you're expecting there. Is that just seasonality? Or is there any kind of COVID impact there as well?

Jeffrey H. Fisher -- Chairman Of The Board, Chief Executive Officer And President

Okay. Aryeh, I appreciate the question. 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 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, we got Dennis or Jeremy, but I think that's surely 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, the colder weather. So, they're not out as much on the weekends traveling like that. But Dennis, do you want to add anything to that?

Dennis M. Craven -- Executive Vice President And Chief Operating Officer

No. I think that's right.

Jeffrey H. Fisher -- Chairman Of The Board, Chief Executive Officer And President

I appreciate that.

Aryeh Klein -- BMO Capital Markets -- Analyst

All right. Thanks. And then just on the asset sale. Could you talk about what the performance at that hotel, has been like throughout the pandemic. And then is this it from an asset sales standpoint? Or are you looking to sell additional hotels? What should we expect from that standpoint?

Jeremy Wegner -- Senior Vice President And Chief Financial Officer

I mean, listen, we don't have anything else, Aryeh, 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 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 at gasoline, which is 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 gasoline location. But as far as performance this year, our Mission Valley hotel has been -- has performed pretty well. In 2019, NOI was about $4.3 million. 2020 NOI is projected to be around $2.6 million. 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.

Aryeh Klein -- BMO Capital Markets -- Analyst

Got it. Appreciate the color. Thanks.

Dennis M. Craven -- Executive Vice President And Chief Operating Officer

Thank you.

Operator

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

Bryan Maher -- B. Riley Securities -- Analyst

Great, and good morning. And quite frankly, a pretty good quarter, all things considered. So, congrats.

Dennis M. Craven -- Executive Vice President And Chief Operating Officer

Thank you, Bryan. Appreciate it. Thanks.

Bryan Maher -- B. Riley Securities -- Analyst

When we look at this sale, and I hear you that there's nothing else kind of being brokered for sale or 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, 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?

Jeffrey H. Fisher -- Chairman Of The Board, Chief Executive Officer And President

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 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'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 in 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 service or 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.

Bryan Maher -- B. Riley Securities -- Analyst

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 in slack during the pandemic. How do you think about that? 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 forward?

Jeffrey H. Fisher -- Chairman Of The Board, Chief Executive Officer And President

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 in our hotels. It's very insignificant, F&B, but the complimentary recast 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 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 that right back to where it was before. We'll find it. The rest of the franchisee community will find it. And we'll see how far they get with that.

Dennis M. Craven -- Executive Vice President And Chief Operating Officer

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, kind of a little over $4 in 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 $1, 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 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 we've harped on now for probably 4, 5, 6, 7, eight quarters, I don't know.

We spent about I think we spent roughly $65 million 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 either you're not servicing a room as much or you're 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 save 5% of that, that's 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.

Jeffrey H. Fisher -- Chairman Of The Board, Chief Executive Officer And President

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

Bryan Maher -- B. Riley Securities -- Analyst

Thanks, Jeff.

Operator

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

Tyler Batory -- Janney Capital Markets -- Analyst

Thank you, good morning. So, just follow-up on some of the other questions that have already been asked here. I'm curious to go back to that length of stay statistic that you guys cited in the opening remarks. Is leisure travel, what's driving that average length of stay higher? And kind of how impactful was that to your margins in the third quarter here?

Jeffrey H. Fisher -- Chairman Of The Board, Chief Executive Officer And President

Dennis, you want to take that?

Dennis M. Craven -- Executive Vice President And Chief Operating Officer

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 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'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, Summerville as well as up in the Northeast and even in San Mateo at our Residence Inn there. Again, longer-term guests. We have some student housing a few of our hotels. Again, longer-term guests.

So it's really just the 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. And that's -- if you recall from -- in my prepared comments, our cost per occupied room in our rooms department was $16 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.

Tyler Batory -- Janney Capital Markets -- Analyst

Okay. Okay. And that's a good segue to 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 levels. At what point 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.

Dennis M. Craven -- Executive Vice President And Chief Operating Officer

Yes. I mean, I think as you -- if you look at the data points going from kind of 775 to 850 between June and September. I think 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 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're definitely not going to be bringing back the same number of employees as you would have pre endemic

Tyler Batory -- Janney Capital Markets -- Analyst

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, some of these properties in your markets as they're reopening?

Dennis M. Craven -- Executive Vice President And Chief Operating Officer

Yes. I think it's -- I think to talk about the first one. I don't know if I can come back to you, Tyler, on the percentage of rooms that are still closed versus September 30 versus June 30. 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 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 think as -- 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.

Tyler Batory -- Janney Capital Markets -- Analyst

Okay. Great. That's enough for me. Nice quarter by the way as well. Thank you.

Dennis M. Craven -- Executive Vice President And Chief Operating Officer

Thank you.

Operator

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

Anthony Powell -- Barclays -- Analyst

Hi,good morning. The question on the sale price, the 6.5% cap rate. It's pretty good. How do you and the buy or get that price?

Dennis M. Craven -- Executive Vice President And Chief Operating Officer

It was -- I mean, listen, I think it was a negotiation, obviously. We were firm that we're not interested in selling at a distressed price. The hotel -- as we talked about on a prior question. Hotel is one of our top performers through the pandemic for the last five or six months. So I think for us, it's a -- it was a fair price, I think, for both parties. I think for us, it's -- we're very pleased with the 6.5% capital 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. It's current in terms of every need that the San Diego House Commission was needing for its permanent support of housing target. So, I think all in all, there's going to be -- that all benefited in terms of price. And the fact that we, 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...

Anthony Powell -- Barclays -- Analyst

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

Dennis M. Craven -- Executive Vice President And Chief Operating Officer

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, 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, kind of an attribute to our portfolio with the bulk significant extended stay component as 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.

Anthony Powell -- Barclays -- Analyst

All right. And maybe just 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 right out in a lot of locations. What's your view on kind of on wage pressure and the labor costs, given all the unemployment assistance that's coming in and out and just, and the labor market is changing. Do you think you'll be able to stack next year as things ramp up at lower prices to be bid last year?

Dennis M. Craven -- Executive Vice President And Chief Operating Officer

Yes. I think two different points -- two different answers to that question. One is, after the $600 a week supplement was 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 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 we'll only continue to loosen 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 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 have been paying pre pandemic.

Anthony Powell -- Barclays -- Analyst

Thank you.

Operator

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn the conference call back over to Mr. Jeff Fisher for closing remarks.

Jeffrey H. Fisher -- Chairman Of The Board, Chief Executive Officer And President

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 0 and ultimately, of course, substantially positive. And we look forward to supporting those kind of positive developments as we move forward. Thanks a lot.

Operator

[Operator Closing Remarks]

Duration: 48 minutes

Call participants:

Chris Daly -- President

Jeffrey H. Fisher -- Chairman Of The Board, Chief Executive Officer And President

Dennis M. Craven -- Executive Vice President And Chief Operating Officer

Jeremy Wegner -- Senior Vice President And Chief Financial Officer

Aryeh Klein -- BMO Capital Markets -- Analyst

Bryan Maher -- B. Riley Securities -- Analyst

Tyler Batory -- Janney Capital Markets -- Analyst

Anthony Powell -- Barclays -- Analyst

More CLDT analysis

All earnings call transcripts

AlphaStreet Logo