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Pebblebrook Hotel Trust (NYSE:PEB)
Q3 2020 Earnings Call
Oct 30, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Pebblebrook Hotel Trust Third Quarter 2020 Earnings Call. [Operator Instructions]

It is now my pleasure to introduce your host, Raymond Martz, Chief Financial Officer. Thank you, sir. You may begin.

Raymond D. Martz -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Thank you, Christine, and good morning, everyone. Welcome to our third quarter 2020 earnings call and webcast. Joining me today is Jon Bortz, our Chairman and Chief Executive Officer. But before we start, a quick reminder that many of our comments today are considered forward-looking statements under federal securities laws, and these statements are subject to numerous risks and uncertainties as described in our 10-K for 2019 and our other SEC filings, and future results could differ materially from those implied by our comments. Forward-looking statements that we make today are only effective as of today, October 30, 2020, and and we undertake no duty to update them later. Our SEC reports and our earnings release contains reconciliations of the non-GAAP financial managers we use, which are available on our website at pebblebrookhotels.com.

Okay. We now have 39 hotels opened, marking a significant increase from the end of March when we had just eight hotels opened. And from our second quarter earnings call at the end of July, when we had 24 hotels opened. Of the 14 hotels that are currently closed, 10 are in San Francisco, with one each in Chicago, New York, Portland and Washington, D.C. We will reopen these hotels as demand and economics warrant. Our monthly cash burn has further improved as a result of healthy leisure travel demand, the beginnings of a recovery in business travel and opening additional hotels during the quarter due to improving demand and economics. It's been running at just $5 million to $8 million at the hotel level, $10 million better than the $15 million to $18 million cash burn we estimated back in May.

Our total average multi cash burn, which includes our corporate G&A, interest and dividend payments is now running between $16 million and $21 million. This is $9 million better than the $25 million to $30 million estimate we were experiencing in May. With an increasing number of travelers feeling confident about traveling and staying in hotels each week, we've been pleasantly surprised by the positive momentum in the last few months, given the intense uncertainty in the pandemic environment. For the third quarter, same-property property revenues of $77 million were 80.7% below the prior year period, with total hotel level expenses of $96.2 million, which were reduced by 63.2% from the prior year third quarter.

Our expense reduction was 78% of the revenue decline, which illustrates our operating and asset management team's tireless efforts to reduce expenses significantly given the drastically altered operating environment. Excluding fixed operating costs such as property taxes, insurance and ground rent, operating expenses were slashed by 70.8%, which was 88% of the revenue decline. We feel good as we can about these comparable operating results given the environment. Our hotel teams did a great job reducing operating expenses at both the suspended hotels and open hotels. As we noted in last night's earnings press release, we continue to experience healthy leisure demand. Since Labor Day, we've seen a modest uptick in business travel demand, while leisure travel has held up better than its traditional post-Labor Day decline.

Our total portfolio generated $21.1 million of revenue in July with 24 hotels opened, $25.8 million in August with 35 hotels opened, and $30 million in September with 35 hotels opened. For October, we are on track to meet the total revenues we achieved in September, which is encouraging, particularly without the benefit of a long-holiday weekend like Labor Day, and with leisure demand being negatively impacted by Halloween in the last weekend of the month. For the third quarter, same-property hotel EBITDA was negative $19.3 million, compared with a positive $137 million from the prior year period. However, it marks a significant improvement from the second quarter when EBITDA was negative $40.8 million.

On a per key basis during the third quarter, our hotels generated revenues of $5,800 per key, hotel expenses of $7,300 per key, resulting in negative hotel EBITDA of $1,500 per key. By month, same-property hotel EBITDA was negative $6.8 million in July, negative $7 million in August with $2.1 million of retail rent write-offs and negative straight-line rent impact and negative $5.5 million in September. We currently expect our same-property hotel EBITDA in October to be roughly in line with September. We are also encouraged that our open hotels were also EBITDA positive in total for the quarter and in the months of July and September. August would have been EBITDA positive after the removal of the negative impact of the retail rent write-offs and straight-line rent adjustments.

Our eight resorts have been the bright spot in portfolio all summer as well so far in the fall due to their obvious appeal to leisure demand and their desirable drive to locations. They generated a positive $12.6 million of hotel EBITDA in the quarter. This resulted from an occupancy of 51% and average daily rate of $303, which was almost $30 over the prior year period and is 10.3% over an increase over the prior year. As a result of the new operating models at all of our hotels, we achieved a GRP margin at our resorts 10 basis points higher than last year's third quarter, despite a 30% decline in rooms revenue and a 38.5% decline in total revenues at our resorts. We think this is a pretty incredible achievement and not only a testament to our property teams but how will you be able to operate much more efficiently on an ongoing basis in the future.

As a reminder, leisure transient portfoliowide has historically accounted for about 40% of our demand. With corporate transient at 35% and group at 25%. Our adjusted EBITDA was negative $27.6 million in the third quarter compared with a positive $136.5 million in the prior year period. Our current quarter also reflects $1.8 million of onetime costs related to spending and dramatically reducing operations. Adjusted FFO per share declined to a negative $0.51 per share compared with a positive $0.77 per share in the prior year period. Shifting to our capital improvements in the quarter, we invested $20.8 million of capital into the portfolio, which is primarily related to completing two transformational projects, the redevelopment of the Donovan Hotel as Otona, Washington, DC and the transformation of Mason and Rock into the Viceroy Hotel, Washington, D.C.

We currently expect an additional $15 million to $20 million in capital investments during the remainder of 2010, which includes the expected commencement before year-end of the $10.5 million redevelopment of the luxury L'Auberge Del Mar resort in Southern California. As we look forward to 2021, we currently don't expect to commence any other significant capital renovation projects during the year. However, we'll continue to move several transformational projects forward through the design and permitting phases so that we're in a position to quickly commence work on the improvements at the appropriate time in the future. Shifting to property dispositions. As we previously reported on July 29, we sold a Union Station Nashville hotel for $56 million, which increased our available liquidity. Year-to-date, we've completed $387 million of property sales.

Turning to our balance sheet. At the end of September, we had $2.4 billion of debt, 100% of which is unsecured and an effective average interest rate of 3.8%. This equates to a net debt to depreciated book value of approximately 38%, which is less than 30% of our estimate of our hotel portfolios replacement costs. We had 352 -- $353.2 million of availability on our $650 million unsecured credit facility and $217 million of cash on hand, which implies total liquidity of $570.2 million for our ongoing operating and capital investment needs, which should be far more liquidity than needed to get us at a point of generating positive cash flow sometime next year. Overall, we're in good shape of our debt maturities. We have just $57 million of debt maturing in November 2021 and no meaningful additional debt maturities until November 2022.

And with that, I would now like to turn the call over to John. John?

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Thanks, Ray. So I thought I'd start by hitting the highlights of what we saw during the quarter and what we're seeing now. Of course, it all starts with the leisure traveler, which was the primary demand segment during the quarter and has continued to be so since the end of the quarter. Our eight drive two resorts and our drive to get away markets such as San Diego and Los Angeles, have been our strongest performers due to their easy access, their outdoor amenities and activity offerings and their favorable weather. Yet leisure has been driving business in our urban markets as well, like Philadelphia, where people are just looking to get away from their homes and the monotony of their routines for a weekend in a downtown or city hotel.

We saw leisure demand increase throughout July and August, peak over the three day Labor Day weekend but continue post-Labor Day and into the fourth quarter. We even saw an improvement over the Columbus or indigenous people's holiday weekend in early October. While leisure travel has softened from the summer season's traditional strength, the post-Labor Day fall off has been nothing like a typical year. Weekends continue to be strong. Relatively speaking, of course, and we continue to see weekday leisure travel as well, with many people having flexibility due to work from home and learn from home in many places. In fact, occupancies at both our resorts and our urban properties have been better in September and October than in August.

And -- but for the Labor Day weekend, they've been better in October than September. Weekends that our resorts ran 84% in August, 83.3% in September and 83.3% so far in October, with just one weekend left. Weekends at our urban properties ran 38% in August, a much improved 50% in September and 48.9% so far in October. In total, weekends for our open hotels ran 48.8% in August, 57.1% in September and 56% month-to-date in October. During the third quarter and particularly since Labor Day, we've also seen the beginnings of a modest recovery in business travel. This has primarily been business transient, but we booked and cooked some small business groups as well. We've also accommodated a growing number of small social groups, including micro weddings, anniversaries and reunions, most of it in the outdoors.

And more of it is in places like LaPlaya in Naples, Florida, and Skamania in the Columbia River Gorge in the state of Washington as those states have allowed larger group gatherings. We expect this recovery in business travel to be a prolonged process. With the pace of its recovery likely dictated by health advances, slowing the spread of the virus and improving the outcomes from the virus. And it certainly seems it's at least a couple of quarters away from today. Outside of our resorts, which were our best-performing properties, our hotels in San Diego, Los Angeles, Boston and Philadelphia have been our best performing markets. San Diego, of course, is benefiting from a consistently great weather.

The fact that Mayor has done a great job safely reopening and marketing the city and its attractions and amenities. The fact that it's a short drive from a large population base. And on a relative basis, its traditional lack of significant business transient travel that has otherwise been severely impacted by the pandemic. L.A. is also benefiting from its traditionally more attractive weather. The outdoor nature of the West side of L.A., its beaches and the return of travel-related to music, television and movie production as those industries reopened in the third quarter. Boston is benefiting from travel-related to healthcare, biomedical and biotech, all of which are booming right now as well as the strong education base in the city. It's also benefited from a safe way it has reopened.

And finally, Philadelphia. Not sure why Philly is doing so well, other than a historically strong restaurant, and outdoor and other amenities, the city has to offer. And perhaps it's a getaway alternative to New York City. In addition to being encouraged by the continuing health of leisure travel, in the beginnings of a recovery in business travel, we're even more encouraged by the dramatically improved efficiencies at our property operations, with all new operating models at each property. You've heard me say this before, but we've literally gone through a true zero-based budgeting effort between our asset management team and our operators. As Ray noted, our open hotels achieved positive EBITDA in total throughout the quarter, even as we opened additional hotels in the urban markets that have been slower to reopen and recover.

Hats off to our teams for doing an incredible job to mitigate our losses and drive positive EBITDA where possible. We know they're working with slimmer teams. With lots of cross-functional efforts, truly an incredible team effort. I thought I'd provide a few portfoliowide facts and a few property-specific examples. On a portfoliowide basis, for our open hotels, room revenues declined 69.6% from Q3 last year. Total revenues also fell 69.6% and rate was down 19.7%. Total expenses were reduced 54% and GOP declined 82.6%. GOP margin went from 42% last year to 24.2% this year. We think this is a pretty amazing effort by our operating and asset management teams. As we reopened more properties in the quarter and as performance improved during the quarter, more properties achieved positive GOP.

We went from 16 properties with positive GOP in July to 18 properties in August to 26 hotels of the 35 that were opened in September. And here's a few examples of individual property performance. So you can understand how significant the changes in the operating models have been. At Southernmost Resort in Key West in September, a seasonally slow month in Key West. Room revenues were actually higher this year than last year, up by 5.6% with all of it being occupancy as rate was down $1. Total revenues were up over 15% in the month, including food and beverage, parking and spa, which, of course, are not as profitable as rooms.

Even with some higher cleaning and operating costs related to maintaining the health and safety of our associates and guests, GOP grew by 28.6%, and the team delivered a GOP margin 530 basis points higher than September last year. The Marker Waterfront resort in Key West, room revenues were down 5%, with total revenues declining almost 7%, yet GOP increased 5.8% from September of last year, with GOP margin climbing 550 basis points, outstanding performances by our teams at both Key West properties. At LaPlaya in Naples, room revenues also increased in the seasonally slow September month. In this case, by almost 16%, with total revenues growing by just over 7%.

GOP increased by 164.5%, with GOP margin climbing from 11.4% to 28.2%. At L'Auberge in Del Mar, outside of San Diego, room revenues declined by 12.6% from last year, with total revenues down by 33% due to a lack of group banquet and catering, yet GOP only declined by 24.4%, obviously less than the revenue decline, and GOP margin actually increased by almost 500 basis points to 42.6%, even with a significant decline in revenues. And finally, Le Parc, a recently redeveloped all Suite residential hotel in West Hollywood. These numbers will help you see the benefit of the new operating model of our urban hotels like this property where occupancies remain challenging.

In September, room revenues were down almost 65%, with ADR holding up with a decline of just 7.5%. Total revenues were also down 65% as Le Parc has a more limited food and beverage offering, even in normal times. Yet even with these large revenue declines from September last year, GOP was down just 73%, only slightly higher than the revenue declines. Not only did the property achieve positive GOP in September, but it still hit a GOP margin of 38.8%. While that was down from 49.4% last year, the property team also managed to achieve positive EBITDA with a 14% EBITDA margin. None of these properties could have achieved these bottom line numbers without new operating models coming out of our zero-based budgeting initiative that has significantly reduced costs and created much more efficient staffing levels.

Of course, while some of these costs will come back as demand and occupancies recover, many of these efficiencies will stay in place and deliver better results and values over the long term. And they'll also speed up the recovery to 2019 EBITDA levels. I also wanted to point out that our independent and small brand lifestyle properties continue to outperform our major branded properties at both the top and bottom lines. Our hotels cater to the one major segment that continues to be healthy, leisure travel. The unique design and experiences that we can provide and the smaller, more personal nature of our properties continue to be a strategic benefit for our portfolio.

These properties are also more flexible when it comes to quickly changing operations and adapting to evolving customer desires. They're also able to move faster in reducing costs yet still deliver an attractive product to the customer, both of which have been very beneficial to delivering favorable bottom lines at these low demand levels. With 39 of our 53 properties now open, we will reopen the remaining properties as demand recovers and economics dictate. As we've said repeatedly, we will reopen each hotel when we can lower our losses by being open. This varies by property and by market. With the coming winter and the decline in demand that is typically associated with colder months, such as November through February. We currently don't anticipate opening additional hotels in San Fransicso, Chicago or New York until sometime next year.

We do continue to evaluate the two remaining suspended hotels in Portland and Washington as demand recovers. We're also doing everything we can to accelerate this reopening process, including hunting for additional contract business like airline crews, which we otherwise wouldn't have previously taken due to lower rates. However, for the next year or two, we believe they'll be financially attractive in most situations. And we've had some luck in that area, which should help reduce our cash burn as airline travel further recovers. As we noted last quarter, we also had luck with the tracking university contract business for student residences at two of our hotels in Boston, and we continue to search for similar business in Boston and elsewhere.

Over the next few years, we would expect our hotels to outperform their specific markets, similar to what they did last year and early this year before the pandemic struck. Being able to dip down and compete with lower price point hotels and be successful with contract business, only happens because our hotels are of high-quality, are in good locations, and are in very good condition. And our hotels are in better condition than most of our hotel competitors in our markets. And that difference can be expected to widen as we continue to maintain our hotels and many competitive hotels are starved of capital investments as they struggle to survive. 40 out of 53 of our properties have undergone major renovations, redevelopments or transformations in just the last five years. nine in just the past few quarters, and 10 in 2018.

This will be a big advantage over the next few years. We're also currently planning to move forward with a $10.5 million renovation of the luxury L'Aurberge, Del Mar resort commencing late this year. We've completed the design. We've received all required approvals from the city. And believe the dramatic improvements to all of the public areas and guestrooms and the creation of additional outdoor venues will enhance what is already a very high rated, successful luxury resort in Southern California. The decision to move forward with additional redevelopments in our portfolio will be made on a case-by-case basis. And will depend not only on the recovery of the properties in their markets, but the timing of the receipt of final public approvals for each project as well as the pace of the economic recovery and our own recovery.

When we think about the remainder of the fourth quarter and the first quarter of next year, these next four to five months are challenging to forecast, given the lack of relevant historical demand trends to guide our forecast. In addition, we must consider the potential negatives related to the recent increase in COVID cases throughout much of the U.S. that we're currently experiencing and what many have been previously forecasting as a difficult second wave as well as the reactions by many states and cities to expand travel-related quarantines and roll back operating guidelines for some businesses. These negative factors increase the uncertainty as we look out over the next several months. Given that November is traditionally the beginning of the seasonally slower travel period, we think it will be difficult to continue to grow nominal revenues through much of the winter.

And depending upon what transpires with the pandemic, they may soften somewhat from the September-October periods as they've done historically. This means we're more likely to achieve portfoliowide hotel EBITDA losses at the less attractive end of our more recent run rate range of minus $5 million to minus $8 million or slightly worse from now until this spring. To be clear, we currently expect that it's likely that nominal industry demand and revenue will soften over the next few months as we enter late fall and winter, which is consistent with what normally happens in our industry as the weather becomes less conducive for travel. However, with medical advances likely over these next four to five months, we also think it's likely that we in the hotel industry will see improvements in the recovery as warmer weather arrives in the spring.

As we look at the silver lining of potential upside from this crisis, we also expect there will be significant opportunities over the next few years to acquire properties in distress due to a large number of cash trapped and over-levered owners. And many properties that will go back to lenders. As you know, our team has been through two-prior crisis-driven opportunistic periods, including one that resulted in the creation of Pebblebrook in late 2009 during the tail end of the Great Recession. Following that crisis, we were able, with conviction to fairly quickly and aggressively assemble a unique portfolio of high-quality hotels and resorts at very attractive prices that also had substantial upside opportunities.

Given our ability to operate our properties more efficiently than the vast majority of buyers, our unique strength in redevelopments and transformations. Our vast number of operator relationships and our high-profile and positive reputation in the industry, we believe we'll have significant competitive advantages as opportunities arise over the next few years. We continue to spend significant time on the best ways to approach and structure our efforts to take advantage of these opportunities as they come about. Finally, it's safe to say we'll all -- we all find ourselves in uncharted territory with an almost complete lack of clarity about how the future will play out.

We remain encouraged by the slow yet consistent recoveries in travel in our industry and in our business that are currently under way. It'd be great if the recovery was faster, but we prepared for a lengthy and challenging recovery from the beginning of this pandemic. We continue to be confident that our entire team's experience, reputation, foresight, creativity, work ethic and track record, combined with strong corporate liquidity and a fantastic portfolio will allow us to not only grind through the current challenges but thrive during the recovery and the next up cycle.

So with that, we'd now like to move on to your questions. Christine, you may proceed with the Q&A.

Questions and Answers:

Operator

[Operator Instructions] Thank you. Our first question comes from the line of Smedes Rose with Citi. Please proceed with your question.

Smedes Rose -- Citi -- Analyst

Hi, good morning. I guess, just in light of the commentary that you gave and how the portfolio did in terms of modestly breakeven with very low occupancy rates. Where do you think -- what sort of occupancy do you think you need to see in order to go to breakeven just on -- of on a corporatewide basis at this point?

Raymond D. Martz -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

So obviously, there are a number of variables there, including rate and other revenues. But we think it's somewhere between 45 and 50, maybe low 50s, in order to cover all of the corporate net interest, dividends, G&A, et cetera, to breakeven.

Smedes Rose -- Citi -- Analyst

And does that assume some sort of decline in year-over-year rate as well, I assume?

Raymond D. Martz -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Well, certainly rate compared to last year. Yeah. Yeah.

Smedes Rose -- Citi -- Analyst

Okay. And then, Jon, I just wanted to ask if you could spend a couple of minutes on just the San Francisco market, where that's -- since that's where the bulk of your hotels are still closed. Just kind of, what are you seeing on the convention calendar, if anything? And just kind of your thoughts on the overall kind of cities trajectory from here?

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Yes. So most of these convention authorities, whether in San Francisco, or pretty much any other major market, have seen pretty much all conventions canceled through at least the first quarter of next year. And many are seeing the cancellations into the second quarter of next year. Our expectation at this point is, it's not likely we're gonna see much major citywide activity anywhere, whether it's in San Francisco or San Diego or New York or Boston or Atlanta, et cetera. So we just don't -- without further advances and comfort level with gatherings. And as you know, in most states, any kind of major gatherings are not currently allowed. And here we are, with dramatically increasing spread and case loads. So I think it's -- while it'd be wonderful, and we'd love it to happen, we just don't think there's gonna be much in the way of major group and citywide before midyear next year.

Raymond D. Martz -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

And I think as it relates to San Francisco, specifically, Smedes, they do continue to have success booking new business in the second half of next year, and further out. And as it relates to the second half of next year, what we are seeing is a decent amount of the business that was in the first half, find a place to book in the second half of the year. So if we do get to a point where major gatherings are allowed and people feel comfortable, there's a pretty good chance we're gonna have an awful lot of business in the second half of next year.

Smedes Rose -- Citi -- Analyst

Great. Okay, thank you.

Operator

Our next question comes from the line of Rich Hightower with Evercore. Please proceed with your question.

Rich Hightower -- Evercore -- Analyst

Hey, guys. Good morning.

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Good morning.

Rich Hightower -- Evercore -- Analyst

I'll commend you on the asset management successes you had last quarter, in light of a very tough situation. So I just wanted to say that. But -- and I, my first question was going to be on the cash burn as we get into the late fall and winter here. And I think, Jon, you sort of answered half of it in the prepared comments. So it sounds like with the expectation for reduced nominal revenues, as you described, you're probably gonna hit the high end or the low end, depending on how you look at it, of the expected cash burn range. Now would there -- I guess, could you contemplate reclosing hotels if it came to that? And would that change those expected cash burn ranges? Or how should we think about that as we get through the next few months?

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Yeah. So Rich, well, first, thanks for the complement. And really, the complement goes to our operating teams at the properties, and our asset management teams who work with them and share so much of our cross portfolio knowledge. But yes, we think it's likely, and again, forecasting is really hard right now. We book about 1/3 -- 25% to 1/3 of our business in the week for the week. And of course, almost all business on the books is fully cancelable. So, and we would say that general cancellations, even of leisure and transient, are running higher than what they traditionally do. So it makes for difficult forecasting. Being at the worse end of that range, takes into account what we think is the most likely scenario to occur in terms of that nominal slowdown from the seasonally colder months.

And also takes into account if it made sense to close down another -- a hotel that had reopened in one of the colder markets, in particular, we certainly will be looking at that and evaluating that. And it's definitely a possibility. Whether it happens, I don't know yet. We don't know yet. We'll have to see how the leisure demand holds up and what amount of business travel there is at those properties. But if it were to occur, it would be a pretty limited number of properties. I'd say, one or two in the portfolio, frankly.

Rich Hightower -- Evercore -- Analyst

Okay. That is helpful. My second question, in terms of the distressed asset opportunities that you described and that we're all kinda seeing play out in real time. Jon, I think you've been pretty vocal in the past that Pebblebrook would not issue equity, doesn't have a need to issue equity anywhere near current levels in the stock price in order to take advantage of some of those opportunities. So in terms of the timing and the structuring and the sources of capital that you would envision in being able to get involved in that, what would that look like? What should we expect? And how are you thinking about that?

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Yean. So Rich, really not much different than what we've said before. It's gonna be off-balance sheet. We'll leverage our equity, a relatively small amount of equity with third-party equity. And there's any number of structures and approaches and investment objectives that we're evaluating, and we may pursue one or more of those. Whether it be joint ventures of fund, a club deal, a Pebblebrook 2.0, a [144], it could come in any number of structures, but all achieve the same objective, which is to lever our equity, take advantage of our expertise and our knowledge in the markets, working with other third-parties, getting paid for that knowledge and expertise and efforts, all as part of it.

So -- and I don't -- and we've said this before also, this is gonna be a slowly ramping up opportunity. We're seeing a few properties per week get freed up. We've started to see more loans come to market, which was what we thought would be the likely first set of opportunities. But this opportunity is gonna be a multiyear opportunity. I mean, it's gonna be three to five years as we work through the sort of gradual and lengthy pain, unfortunately, that the industry is gonna continue to feel for quite some time. And properties that are surviving off of using capital reserves and other reserves, you can only do that for so long, and then you don't have the capital available to actually maintain your asset. So this is the same kinda thing we saw play out after '09.

And at Pebblebrook, we found opportunities that were -- you could argue they were distressed or certainly opportunities created as a result of the distress that occurred the economic downturn and the severity of it. I mean, we saw those all the way through 2014, and we started buying in the middle of 2010, if you recall. So, we think it's gonna be a lengthy process with lots more opportunity than previously. And as a result of that, we wanna make sure we structure this the right way, and it doesn't preclude opportunities as the business recovers and our stock recovers.

Rich Hightower -- Evercore -- Analyst

Okay, got it. Thank you.

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Thank you.

Operator

Our next question comes from the line of Neil Malkin with Capital One. Please proceed with your question.

Neil Malkin -- Capital One -- Analyst

Hey, guys. Good morning.

Raymond D. Martz -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Hey, Neil.

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Good morning, Neil.

Neil Malkin -- Capital One -- Analyst

Hey. Jon, in -- it was refreshing to hear a more optimistic tone in the press release and in your commentary. Very unlike you. But I'm sure that'll help get things going here. So first question, you guys talked about the modest improvement in business travel. Just wondering if you can maybe elaborate on that in terms of what size the business is? Is it more regional? I imagine it's not the big public companies. And also, kinda like what sectors are traveling? Any trends you can see there? And then your larger corporate accounts, what are you hearing from them? And when does it seem like they're gonna start coming back in any meaningful way?

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Yes. So the business transient that we're seeing is really what you would expect. It's people who own their own businesses, whether it's small or medium sized. It's folks who aren't restricted by major corporate restrictions that I think are, to some extent, based upon avoiding liability with their employees. And I think, when we look at the industries, I mean -- and it varies by market. But in Boston, we're seeing a lot of, obviously, healthcare, biotech, biomedical, we're seeing consulting. I think throughout the portfolio, we're seeing consulting that is -- are project-based, facilities-based, that you have to be on-site, you're installing a system.

As an example, you're installing servers and cloud systems in markets with the growth in that industry. In L.A., I mentioned, we're seeing production return in L.A., and including production that might have otherwise gone abroad. But the movies and TV production that would have otherwise take place in a place like Canada, as an example, is not able to do that right now to the same level as before. So we're seeing some production that would otherwise have been abroad come back to L.A. and some other places in the U.S. Also seeing music production in L.A. return. So content development is driving business in some markets as well. I mean, real estate, good example.

Folks who -- it's funny, but trying to lead, I suppose, but a lot of the REITs have come back to their offices, and many of them are having folks travel. Where we're generally not seeing it is in your industry, in the financial services industries. We're not seeing much travel there. We're not seeing much travel in the technology space. I think some of that is the businesses sort of talking their own book, which is to encourage work from home and use of technologies, online, e-commerce, et cetera. But the encouraging part is, I'd say it's probably running about 10% to 15% of last year's levels, and that's pretty consistent with what the airlines have also been seeing.

Neil Malkin -- Capital One -- Analyst

Okay, great. Next one from me. Maybe just a more broad question. In terms of like the model going forward, when the next cycle accelerates, is, in terms of your new operations and on the expense side, protocols with brand standards changing all those things post-COVID, what does that look like in terms of either margin or expense savings? What margins can look like? I don't know if you, for example, back-tested it into what 2019 revenues would be. You could talk about how that looks or how you see that progressing and sort of what peak margins could potentially look like, that would be great.

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Yeah, that's a tough question, Neil, because we don't know what segmentation is gonna look like and how that's going to change on a go-forward basis. But we've consistently, in my 25 years in the business, we've gone through quite, unfortunately, quite a few down cycles. And what we found every time is that as we get to the other end of the cycle, to the up cycle and the peaking, we've always peaked at both higher RevPAR levels, and we've peaked at higher margins. And so this has been a continuing evolution of how we operate hotels in our business. And we've always said, we expect it to continue. And these down cycles do tend to accelerate the progress, just like in any other industry. So what could it be? It could be 200, 300 basis points of overall margin as we get back to similar levels of demand and occupancy levels, would be our guess. But again, it's a guess, Neil.

Neil Malkin -- Capital One -- Analyst

Okay. And just last one, Ray. I think that the recovery kind of taking longer than maybe some expected, a competitor in the industry extended their covenant waivers. Now obviously, everyone has a different portfolio, but have you thought about or started talking with your lending groups about potentially extending those waivers? So you don't run into any problems in next year?

Raymond D. Martz -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Sure. Well, a couple of things, Neil. Neil, there's a lot of time that that's out there until we have to make any of those sort of decisions. I can't speak to whoever you're referring to, but our waiver period goes through the end of the second quarter of next year. So that's 8-plus months from now of time. And we'll continue to evaluate all these things. We have monthly calls with each of our banks just to stay close to them. So we share our perspective of the world, we get their sense as well. So we have plenty of time on that side. We also have other opportunities here, whether we look at additional property sales or there's potential preferred equity and those sort of things. There's a lot of different other levers we can look at to evaluate also increasing liquidity. Because part of this whole discussion with the lenders are, they're focused on waivers, but I also wanna understand what the liquidity is, and maturities.

So these are all part of a broader valuation of the balance sheet and cash sources of capital and so forth. So there's a lot of time there in the future here. I think we'll really see how the next couple of months ago with leisure and business travel. I think we'll see what happens also on the vaccine side cause that's also a positive momentum. But we have plenty of time. I won't say anything, there's anything that we would kind of rush into that we need to do now. Some others who have their waiver periods and earlier may be in a different situation. We have time here, and we'll evaluate it, and we'll make the right course and keep your price as we make progress.

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

I think the timing of maturities have an impact on corporate decision-making as well, Neil. So the fact that we don't have any major maturities until the end of 2022 is -- gives us a lot of runway.

Neil Malkin -- Capital One -- Analyst

Appreciate it.

Operator

Our next question comes from the line of Dany Asad with Bank of America. Please proceed with your question.

Dany Asad -- Bank of America -- Analyst

Hi. Good morning, everybody. Jon, I was just trying to think about what -- 'cause everybody keeps asking about -- we're getting a lot of questions about like the downside risk from potential structural changes to corporate demand. And so have you looked at potentially just given your portfolio mix and your exposures? What any mix shifts could look like if we were to potentially lose whatever you want to call it, 10%, 15%, 20% of corporate demand, what that would look like, and the potential impact that could have on portfolio margins?

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Oh, God, we've looked at an awful lot of studies, and there's a wide range of different opinions about this. There's no doubt, with technology, travel will continue to evolve. It's been doing that over decades. And we've heard about the demise of business travel for -- since I've been in the business, frankly. And frankly, I think prognosticating in the middle of a pandemic, when everybody is doing things completely differently, is not -- it's not really a healthy effort. Now, it doesn't mean you don't try to understand what the potential exposures are, but I would tell you, we're not a big believer that there's gonna be any kind of material falloff in business travel as we come out of this.

And I think we get back to a stabilized level that looks an awful lot like where we were before. If there was something that played out, what we'd see is some minor decline in business transient, and an increase in group as we believe that as more workforce has become more distributed, spread out over the country with more variable in work versus work from -- in the office work versus work from home. We think that increases the need for group meetings, getting your people together. And we think that's good for -- that'll be good for the hotel industry. We also think that conventions, they'll change, they'll evolve. They'll become hybrid. They'll bring in more people virtually, in addition to the people on-site. But I don't think the benefits of business travel go away. And frankly, while there's no doubt that you can get by when everybody is doing it in terms of doing a meeting by Zoom, it's nowhere near as effective as doing it in person.

And I just don't believe that there's gonna be much business that gets replaced by Zoom. Maybe internal meetings and things like that. But we always say, the first time one of our partners doesn't come visit us for a piece of business they're pursuing and someone else does, guess who's gonna get the business? I mean, showing effort and showing you care and showing we're important, your client's important, I don't think that changes because technology is advanced. So, we haven't spent a whole lot of time on that at this point. Maybe that'll turn out to be a mistake, though, I think we have plenty of time at this point. And it's not like we're gonna be dramatically modifying our hotels to accommodate a 1-point change in transient or a 2-point change in transient and a one or 2-point change in group in the industry overall.

Dany Asad -- Bank of America -- Analyst

Fair enough. Thank you for that color. And maybe just at the operating level. So you guys have actually -- are in a pretty good place, just considering your mix of branded and third-party managers. So -- and I know comparing the two against each other is actually not fair because your branded managers are operating a different kind of hotel than third-parties. But with the transitions you've made, again, is it too early to tell? Or -- but have you potentially -- like have you looked at what the impact has been to ops, to margins, to anything as you transitioned some of your third-party managers?

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Yeah. I mean, I think in total, the conclusion is that we're convinced that the savings on the independent side are real and more lasting and substantial, and we're not completely convinced that's the case on the branded side. There are reductions. I don't know that the reductions are ultimately gonna end up being reductions as a percentage of revenue. Right now, there are clearly big nominal reductions from brand standard relaxation. The one thing we are encouraged by is the decisions being made by some of the major brands that have done a lot of activities in clusters, or what they call shared services, and a dramatic reduction in those services that are shared, and bringing the those services, the responsibility for those services back to the property level where we have more control and accountability and flexibility.

So we think that's a big positive in the case of our major branded properties. But we're not convinced that the ultimate savings on the branded side will be as material as those on the independent side. And they haven't been so far. In fact, they've come with a lot of -- a lot more one-time expenses than has been the case on the independent operator side.

Dany Asad -- Bank of America -- Analyst

Got it. Thank you very much.

Operator

Our next question comes from the line of Dori Kesten with Wells Fargo. Please proceed with your question.

Dori Kesten -- Wells Fargo -- Analyst

Thanks. Good morning, guys. How much consideration are you giving right now to additional asset sales? And which markets do you think would have the smallest declines in asset values within your portfolio pre- to post-COVID?

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Yeah. So Dori, we get a lot of calls from potential buyers about lots of different assets within our portfolio. And Tom Fisher and his team spend a lot of time both making sure that anybody who calls that they're real, they're qualified, they have the financial wherewithal to do this, particularly in the case of situations. There's not a lot of new debt financing available. And so transactions, in many cases, will need to be driven by either all or an awful lot of equity in order for the buyer to be real. And so, like we did with Union Station, were the buyers legit, we're happy to talk to everybody, anybody who's legit about properties in our portfolio.

And if there's an attractive price, then we'll move forward with a sale, and we'll reallocate that capital to places where we can get better returns. I think in terms of where we -- where likely the market has seen the least declines, while it would be in our resort portfolio, not surprisingly. And some of the sort of get away markets like San Diego, where those markets not only hold up better, but again, live off of something that's likely not gonna go away like great weather, and the amenity base that's in the market. So that's sort of the best I can tell you right now. A lot of the valuation decisions are gonna be subject to more specific properties, in many cases, than they are the particular markets within our portfolio.

Dori Kesten -- Wells Fargo -- Analyst

Thanks. And can you also talk about booking trends that you've seen for Thanksgiving and Christmas? And is it -- I guess, is it predominantly at your resorts? Or Are you seeing a little bit more widespread in the portfolio?

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Yeah. So the booking trends for Thanksgiving have been, for many weeks now, pretty favorable. And they seem to -- it seems pretty consistent compared to other weekends, and the days around on both sides. So -- and it is at both the resorts as well as the city properties. So what we're speculating is what you would expect, I think, which is for those who are still gonna have family Thanksgivings, people coming in from out of town, maybe more often than normal would be staying in a hotel instead of staying in somebody's house in -- for protection purposes.

So that's consistent with what we're seeing in the portfolio. I haven't focused that much on Christmas week yet, but I think it's likely to perform similarly. We expect these holiday weekends or periods to be stretched out and to benefit more days around them than they would traditionally because of the strength of leisure and the desire of folks to get out and get away. So we're encouraged by that. And of course, that's the -- those are the particularly positive attributes of both November and December, to have significant holidays that we think will drive leisure.

Dori Kesten -- Wells Fargo -- Analyst

Okay. Thank you.

Raymond D. Martz -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Thanks, Dory.

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Thanks, Dory.

Operator

Our next question comes from the line of Michael Bellisario with Baird. Please proceed with your question.

Michael Bellisario -- Baird -- Analyst

Good morning, guys.

Raymond D. Martz -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Good morning.

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Good morning.

Michael Bellisario -- Baird -- Analyst

Just one for me. I just wanna go back to your comments, Jon.

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Thank you for that.

Michael Bellisario -- Baird -- Analyst

Just wanna go back to the San Francisco comments you made.

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Yeah.

Michael Bellisario -- Baird -- Analyst

But really focused on the Z Collection there. Could you update us on how you're thinking about that brand today and the value there, the potential really to monetize that at some point?

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Yeah. I mean, it's -- well, first, the whole business is pandemic interrupted, right? And so that would be the case with the Z Collection. We do continue to focus on expanding that as a proprietary collection. And as time goes on, we'll take a look at its value to -- potentially to third-parties. We only have one of the Zs open in San Francisco. And of course, we just opened the DC property. So, we do have a website up now, and certainly encourage you to go take a look at it. It's quite different than your typical hotel website, and I think it is attitudinally in line with the attitude of the. So -- and as we look at the rest of the portfolio, we'll continue to look at asset s that that make sense being transformed into Zs, and that would be at the appropriate time, which would be consistent with our thoughts on the marker in San Francisco, which we are completing designs and and permitting for it to be converted into Z Collection property.

Michael Bellisario -- Baird -- Analyst

Got it. Thank you.

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Thanks, Mike.

Operator

Our next question comes from the line of Bill Crow with Raymond James. Please proceed with your question.

Bill Crow -- Raymond James -- Analyst

Thanks. Good morning. Jon, what sort of relationship do you see between the return-to-work status and business-travel demand?

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Yea. I mean, I think they're pretty closely related. I think, first, there are obviously indications of the way businesses, how they're looking at the timing of getting back to sort of normal, right? And I guess the encouraging thing is post-Labor Day, we've seen some return-to-office in various markets. Clearly, we'd love to see a lot more. We'd love to see legislation in Congress that passes related to sort of the CARES 2.0 or 3.0, I don't know what the -- what we're counting is what. But that also includes a business liability protection.

And I think that would help as well. And of course, all of these health advances would help aid both return-to-office and return-to-business travel. We have a hard time believing there are many corporations out there where they're not going back to the office where they are allowing people to travel. So, we haven't seen much of that, Bill. But what we've generally seen is most of the people we've seen traveling are also people who've gone back to their offices. So we do think it's pretty closely related.

Bill Crow -- Raymond James -- Analyst

Yeah. One follow-up for me, Jon. You talked a little bit about the days around the holidays and maybe being a little better. It seems like college calendars have changed a lot. We still have people working at home. Could this really be a kind of a blowout December, January, February in places like South Florida or the West Coast of Florida for you? And are you doing enough to -- did you -- you gave us some great statistics on Key West from this past quarter. But rate -- could rate have been pushed more? And are you looking at pushing rate a little bit higher going forward?

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Yeah. So the answer to the first part of your question is, yes, we think there's upside opportunity from this restructuring of education, both Grades 1 through 12, as well as colleges and universities who, in many cases, have cut on property even when they're open. They're on property residences, in many cases, down to Thanksgiving, and sending the kids home and not having them come back for finals as an example. So I do think that can help with increasing leisure demand to levels that are greater than what we would traditionally see. As it relates to are we getting enough rate, we'd always love more rate, and it's a focus in our portfolio. Particular focus, obviously, in the resort markets.

And there are places we're getting significant increases in rates like in Naples and their places in like Key West, where without... You think about Naples, Naples doesn't survive off of festivals and events where you get a lot of compression and a lot of high rates. And so Key West does get to help the average rates there, Bill. And when we compare them to last year, when you don't have all these festivals and events and activities that go on there, we don't have that opportunity to gain from the high rates that we would typically have. So our normal rates without those events are actually running higher. But when we look in compared to last year, where we're losing it is on these particular weekends when these activities would otherwise be going on.

Bill Crow -- Raymond James -- Analyst

Got it. Thank you.

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Thanks, Bill.

Operator

Our next question comes from the line of Lukas Hartwich with Green Street. Please proceed with your question.

Lukas Hartwich -- Green Street -- Analyst

Thanks, good morning. Whenever we do come out of COVID shadow, I'm just curious, do you anticipate any changes in the types of hotels you'd like to own?

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Well, I don't see us moving from full-service to limited service or select service, at least not in the traditional sense. I mean, we believe that, always, the greatest opportunity to create value is to be as far away from a commodity product as possible, where you can use your creativity to to create more value through that process. I think the -- Lukas, if you go back to when Pebblebrook was created, back in '09, we had a much broader set of markets that we were active in pursuing acquisitions that traditionally are more cyclical. And so if we could have found properties in those markets, we would have bought in those markets.

And I think as we look at the next three to five years, we'll come at it with a similar focus and maybe even broader, where we're -- we'll be more focused on the top 30 markets where opportunities may come about out of all of this distress versus the longer-term, more permanent markets that we continue to prefer. These major coastal markets where the supply protection is greatest, and you have the most differentiated number of demand generators, particularly in markets where you have growth in the creative industries.

Lukas Hartwich -- Green Street -- Analyst

Great, thanks. And then just one quick housekeeping question. The transfer taxes related to the LaSalle merger. Can you just provide a little more color there?

Raymond D. Martz -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Sure. That relates to -- in California, just the -- what the tax office assessed the tax at. So we had to pay it, but we're gonna -- we'll be disputing that. We don't agree with the number. And these are typical transactions. These are -- whether it's individual transactions or, in this case, the acquisition of the company of LaSalle. So that's an expense that we recorded in the quarter, but expect us to pursue it. And...

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Part of them paid.

Raymond D. Martz -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Well, hey, we're forced to pay it. It's the beauty of the state of California here. But we're gonna be aggressive in pursuing that. We don't agree with it. And hopefully, we'll get some positive progress on that. But this is gonna play out over time. It's not an issue to resolve.

Lukas Hartwich -- Green Street -- Analyst

Great. Makes sense. Thank you.

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Thanks, Lukas.

Operator

Our next question comes from the line of Gregory Miller with Truist Securities. Please proceed with your question.

Gregory Miller -- Truist Securities -- Analyst

Thanks. Good morning. For your Southern California and South Florida Resorts, as we head into the winter months, what are your current demand expectations from Snowbird leisure versus last year? Especially, say, the Midwesterners to the Florida West Coast. And if Snowbird demand is lighter, how much demand do you think may be replaced by closer-to-home drive to leisure?

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Yeah. We're actually seeing healthy demand from both places. So, we do continue to see folks come down from the Midwest. We also are seeing a broadening and widening of the drive-to markets. So markets like Texas, as an example, that historically hasn't been a major feeder into... Naples, as an example, is an increasing feeder. The other thing we've seen is a meaningful increase in capacity being brought into the market, both parts of South Florida by the airlines. And obviously, they're moving those routes from other places where there isn't demand to markets like these where there is demand.

We've even -- we've seen that in Key West as well, where we've actually seen significant announcements of increased routes and service into the market because the demand is there for that fly to demand. In Southern California, I would say the fly to there is mostly coming in from -- would be Northern California. And the drive-to comes from L.A., Orange County, Central California, Arizona, and Nevada when the weather is much more attractive in Southern California than in those markets.

Gregory Miller -- Truist Securities -- Analyst

Thanks, Jon. And I wanna use my follow-up to talk about West L.A. in particular. Most of the submarkets that you're in in West L.A., and I think especially of West Hollywood and Beverly Hills, there have been headlines in recent months of distressed independent hotels, not your own, but other properties. And at least a few of the hotels are trying to reposition or may permanently close. There also are a number of hotels that have recently opened or planning to open under fledgling small brands between West Hollywood and Santa Monica. You've spoken often of New York City and Chicago in terms of their supply changes. But I'm curious how you see West L.A. going forward from a supply perspective and the potential impact to your hotels?

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Yeah. I mean I think West L.A. is one of those interesting markets where, unlike, say, a New York today or a Chicago today, the residential market is really strong. And so I think what we're -- we would expect is there to be some conversion of less competitive or distressed hotel properties and seeing those convert over to residential. There have been one or two announcements of that. There's been an announcement of a boutique hotel converting to a member's-only property as well. So a little more creative, but something specific to a market that accommodates that kind of use. So we do think it's likely to continue, particularly given where values have been and what level debt likely is on these properties. When there's an alternative like that that's apparent, we would expect to see some more of it.

Gregory Miller -- Truist Securities -- Analyst

Thanks very much. That's all for me.

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Thanks, Greg.

Operator

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

Anthony Powell -- Barclays -- Analyst

Hi, good morning. I wanted to ask Lukas' question a bit -- a different way. So you've long focused on coastal markets with a, kinda West Coast bias. Is that still the case? There are questions about urban markets, if they're still desirable. There's question about the political issues in West Coast markets. What are your views on these issues? And could you, maybe long-term, maybe reduce your reliance on markets like San Francisco, if the kind of, the environment doesn't improve there from either a governance or a just overall environment standpoint?

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Yeah. I think, Anthony, it's something we continuously evaluate and are focused on, and we'll be focused on as we look at new opportunities. We had this conversation a long time ago and what we said was, look, we ended up on the West Coast with an -- a bias to the West Coast because the risk-return proposition was more attractive than on the East Coast in general. And we look at every market the same way, we try to evaluate the risks in each of those markets. One of those risks can be political, one of those can be, how is the city evolving? And some of it can involve an overall macro view. So I would say we're not necessarily believers in a movement out of cities on a long-term basis and into suburban markets, as an example, or rural -- or secondary markets.

We think cities still have a lot of positive attributes and amenities, and reasons for people and businesses to be there, and generally, have a lot more demand generators. You think about today, if I'm a 25-year-old living in a city, and I'm living there because I love the buzz of the energy of restaurants and movies and broadway and sports events. And, well, there aren't any of those right now. So going someplace else or going to live in home right now is, you're not really giving up anything. In fact, you're probably gaining a feeling of safety. So...

Raymond D. Martz -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

It's a lot cheaper too.

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

It's a heck of a lot cheaper, depending upon whether your parents are charging you to be home. But I haven't heard a lot about that in the middle of a pandemic. But I do think, all of these things are factors that we take into account. And we've said -- we've said it publicly, it's been printed in San Francisco, that there are issues that the city has. Look, there are issues that Portland has. They need to get their arms around these and the cities need to move in a positive direction. And if they don't, we're gonna reallocate capital. And yes, that could mean very well, reducing our exposure in San Francisco or Portland, as examples, and moving that capital elsewhere. So we're definitely looking at all of that, we're evaluating all that. There are very positive attributes as to why we went to those markets, but if they get overwhelmed by the negatives, then we'll leave.

Anthony Powell -- Barclays -- Analyst

Got it. What are one or two markets that you're not in now that are highest priority for you to get in over the next cycle?

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

We wouldn't say that publicly, Anthony. I mean, come on.

Anthony Powell -- Barclays -- Analyst

Or maybe describe the attributes of set markets that may be a bit different than -- at the prior time.

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Well, the attribute is the one I just mentioned...

Anthony Powell -- Barclays -- Analyst

Right, got it.

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Which is that you get more attractive returns for the risk that you take. And clearly, the other thing is not related to markets, but assets. I mean, we like assets where we can use our creative experience and expertise to significantly add value beyond just what's going on in the market.

Anthony Powell -- Barclays -- Analyst

Alright. Got it. Thank you.

Operator

Our next question comes from the line of Jim Sullivan with BTIG. Please proceed with your question.

Jim Sullivan -- BTIG -- Analyst

Thank you. Jon, quick question regarding the issue of looming distress for hotels that are likely to default and the opportunities that you may find as a result of that. And you've talked about the -- being very comfortable with the type of product, particularly the smaller independent hotels, that you have a lot of in the portfolio. And when you've talked about the markets that you're not gonna open in, and we tend to think when you mentioned Chicago, tend to think about larger products, a little more large group-orientated product.

And I'm just curious whether there's not, from the standpoint of Pebblebrook, at least, the potential mismatch between where the distress gonna be greatest in this cycle versus the type of hotel you wanna buy. We've already seen in New York, some very large product default and commentary that may never open again. And I just wonder, from your standpoint, maybe Tom has some insights on this, whether there's gonna be that issue? Whether it's more likely to be distress in the large urban product that is focused on a large group customer base.

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Yeah. I don't think there'll be a mismatch, Jim, because I think some of these things are just a question of timing. So, the bigger properties have clearly been hurt to a greater extent, particularly the large group oriented properties as well as the urban properties in that regard. And, but that's just a timing issue. I mean, it's a little like -- I remember when the pandemic started and people were all hot and bothered about Pebblebrook because of our emphasis on the West Coast and -- because that's where the pandemic started, and we said, well, don't you think the pandemic is gonna get back to the East Coast and spread all over the country? And so, I think it's a little bit similar. You think about the level of distress this time, I think we can all agree, it's much greater than the last cycle.

Yes, it's impacting different properties differently, but it's pretty severe everywhere with maybe -- with the exception of particularly hotel types that maybe are really alternative residential properties in the market, like extended stay properties or secondary markets, tertiary markets. And of course, resorts, which are generally doing better. As I said earlier, probably not gonna provide as much of a discount to previous values as other types of properties, particularly urban properties. So I think it's more geographic-focused than it is bigger, large. And while our smaller properties are clearly doing better than our larger properties, they're all pretty distressed, particularly if you had a mortgage on any of them. So we think the opportunity will be similar for the kinds of assets that we like, but by a multiple of three, four, five times what it was in the last cycle.

Jim Sullivan -- BTIG -- Analyst

And then a follow-up question for me. You mentioned when you talked about the special contract business, the university transactions or demand that you've been able to tap into in Boston. I think both of those, I think there were two agreements there, and both of them run one runs. I think through Thanksgiving and the other runs, I think, through the middle of December. And I just wonder, as you look out to the first quarter, whether there's, number one, whether you expect those contracts to be renewed, expanded, reduced? And kind of the broader question -- broader part of the question, whether there's gonna be a significant opportunity for a number of additional contracts, if you will, in the first quarter from other universities and other markets.

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

So I think as it relates to R2, we're in discussions about second semester opportunities. The one at the W would be similar students. The one at Copley, if we have additional business next semester, would be a different program. The program we had -- we have at Copley right now as a one semester, it's actually foreign students doing study abroad in Boston. We're in discussions with others. We -- they've not all decided how they're gonna be teaching and how kids are gonna be learning in the second semester. And so, I think we have to wait and see how that works out. They've learned now who decided to be virtual and who decided to come to campus, and that has an impact on their needs as well. So it's a little too early right now to know how it's gonna play out, Jim.

Jim Sullivan -- BTIG -- Analyst

Okay. Thank you.

Operator

Thank you. We have no further questions at this time. Mr. Martz, I would now like to turn the floor back over to you for closing comments.

Raymond D. Martz -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Thanks, Christine. Thanks, everybody, for participating. I appreciate, for those of you who've continued to stay on the call with all the questions that we had. Hopefully, you found that time useful, and we look forward to updating you. As this quarter progresses, we'll provide some mid-quarter -- some during the quarter updates. And then we look forward to speaking with you again in February of next year. Thanks very much, and happy holidays to everyone.

Operator

[Operator Closing Remarks]

Duration: 86 minutes

Call participants:

Raymond D. Martz -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Jon E. Bortz -- President, Chief Executive Officer, Chairman of the Board

Smedes Rose -- Citi -- Analyst

Rich Hightower -- Evercore -- Analyst

Neil Malkin -- Capital One -- Analyst

Dany Asad -- Bank of America -- Analyst

Dori Kesten -- Wells Fargo -- Analyst

Michael Bellisario -- Baird -- Analyst

Bill Crow -- Raymond James -- Analyst

Lukas Hartwich -- Green Street -- Analyst

Gregory Miller -- Truist Securities -- Analyst

Anthony Powell -- Barclays -- Analyst

Jim Sullivan -- BTIG -- Analyst

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