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Hersha Hospitality Trust (NYSE:HT)
Q3 2020 Earnings Call
Nov 10, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Hersha Hospitality's Third Quarter Conference Call.

[Operator Instructions]

I'd now like to turn the conference over to Mr. Greg Costa, Investor Relations. Please go ahead.

Greg Costa -- Director of Investor Relations

Thank you, Nick, and good morning to everyone joining us today. Welcome to the Hersha Hospitality Trust Third Quarter 2020 Conference Call. Today's call will be based on the third quarter 2020 earnings release, which was distributed yesterday afternoon.

Prior to proceeding, I'd like to remind everyone that today's conference call may contain forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties and other factors that may cause the company's actual results, performance or financial positions to be considerably different from any future results, performance or financial positions. These factors are detailed within the company's press release, as well as within the company's filings with the SEC.

With that, it is now my pleasure to turn the call over to Mr. Neil H. Shah, Hersha Hospitality Trust's President and Chief Operating Officer. Neil, you may begin.

Neil H. Shah -- President and Chief Operating Officer

Thank you, Greg. And good morning everyone and thank you for joining us on today's call. Joining me this morning are Jay H. Shah, our Chief Executive Officer and Ashish Parikh, our Chief Financial Officer.

We are fortunate to have some encouraging news in the macro environment that could provide a tailwind to our team's efforts across the last eight months. Emerging consensus around the split government removes an area of uncertainty for business and local governments. And Monday's announcement of a vaccine and other therapeutics, while not a panacea should ultimately be a catalyst for business and international travel. It will take time to distribute and it will likely be several more months for large companies to encourage travel again, but there is more visibility today than there has been across the last few quarters. This said, the hotel sector is still has plenty of wood to chop and the seasonally slower fourth and first quarter will make continued gains in RevPAR and reductions in cash burn more challenging. We continue to plan for a sluggish recovery in 2021, gaining momentum in the back half, followed by a more robust growth in 2022 and 2023. We are encouraged by the recent news, but remain razor focused on reducing cash burn and shoring up liquidity as we close out this challenging year. I'm going to touch on operations and capital allocation before turning it over to Ash for a deeper dive on cash burn and liquidity planning.

Last March, we took immediate action to shore up our liquidity and mitigate expenses by temporarily closing hotels. Our primary goal in the second and third quarter was to minimize cash burn while reopening our hotels. We achieved this goal as we now have 37 of our 39 wholly owned hotels open and operational with the two remaining closed hotels under contract for sale. This sets up our portfolio to capture incremental demand through the end of the year and to continue to gain market share during the early stages of the recovery in 2021. Our ability to stay nimble and leverage our flexible operating model in close connection with our independent franchise operator allowed us to reopen our hotels in a timely and cost-efficient manner. This relationship coupled with our cluster strategy to maximize revenues and generate marketing advantage and economies of scale has given us the opportunity to reduce our cash burn rates and breakeven levels and sets up our portfolio to generate cash flow earlier than our peers as we continue to navigate this recovery. It has also yielded positive results over the prior few months. Of the 28 comparable hotels that were open throughout the third quarter, 21 of these hotels broke even on the GOP line with nine achieving EBITDA breakeven levels. Leisure travel remained strong post Labor Day. Weekends at many of our resorts outpaced pre-COVID performance and even provided a base during the week as many travelers have been able to take advantage of remote working and learning, lower gas prices and limited weekend sports engagements and other social activities. TSA data continues to improve sequentially week over week. Drive-to resorts have been our strongest performers since the inception of the pandemic and that continued through the typically robust summer months. Our Sanctuary Beach Resort was the best performing asset again during the third quarter, ending the period at 81% occupancy with a $570 ADR, which led to 16% RevPAR growth. Success continued in October, despite worries that leisure travel would subside after Labor Day as the resort grew RevPAR by 22% aided by 55% ADR growth and 70% occupancy. Down the California coast, the hotel Milo in Santa Barbara continued its momentum from the second quarter and finished the summer on a strong note with third quarter ADR in line with last year, aided by a very strong September, which saw 70% occupancy and 11% ADR growth. Down in Miami in South Florida, the case count escalation in June and July led to beach closures, restaurant and bar restrictions and curfews which stifled demand all summer. Since Labor Day, drive-to traffic began to return as Miami and Key West have opened beaches and have loosened restrictions on restaurants and bars. We have been able to win market share and saw an occupancy bump of 1500 basis points versus August for our South Florida portfolio and that momentum continued into October, as our portfolio occupancy grew another 500 basis points for the month.

By the third quarter, we began to see Northeastern and Midwesterners flying to Key West and Miami despite COVID-19 concerns. This pent-up demand has continued in the fourth quarter as we are seeing positive trends for our portfolio entering the peak travel season for South Florida. Rates around the holiday week between Christmas and New Year's are already in line with last year and with a strong 30% occupancy already on the books across our South Florida portfolio, we believe demand will continue to pick up as we move through the holiday season.

Pre-COVID our resorts portfolio, all the drive-to from one of our gateway market clusters contributed 25% of our EBITDA. In 2020, these hotels will be among our top cash flowing hotels. 75% of our portfolio remains gateway urban markets. These markets have lost not only business, international and group travel but have very few attractions for leisure travelers until cities open back up. Our teams have done an admirable job reducing cash burn and ramping to breakeven in this very low demand environment. As we continue to reopen hotels across our markets, we saw a change in traveler walking through our doors. During the summer, we moved from first responder business to our new normal traveler, elective health-care workers and patients, design and construction teams outfitting offices to become COVID-compliant, professional sports teams quarantining during their abbreviated seasons and personnel related to content and entertainment production on-site around the country as studios remain shut and even the occasional micro wedding or corporate buyout. Traditional corporate travel didn't return with its usual force post Labor Day, however across our urban markets there were employees staying in our hotels to avoid mid-week commutes, smaller businesses utilizing hotel rooms for office day use and even corporate buyouts for smaller meeting space. September and October have seen a continued increase in these unique travelers staying in our hotels. We've been working with local universities, housing students at The Boxer in Boston allocating inventory at our Annapolis Waterfront Hotel approximate to the US Naval Academy and continuing to work with universities in many of our urban clusters for the upcoming spring semester by offering alternatives for the new housing protocols that are likely to persist through the end of the school year in 2021. In New York we saw success around staycation packages in Brooklyn, production teams in Tribeca hosting virtual Fashion Week events, government census workers in White Plains and a pickup in higher rated corporate business from the leading financial services and consulting firms that stay at our Hyatt Union Square. In California, our select service hotels in Sunnyvale housed relief business related to the wildfires while in Washington DC, our Capitol Hill Hotel has seen increased bookings from elevated Supreme Court and congressional activity. On the West End in Washington, our St. Gregory successfully contracted with various media outlets for increased coverage leading up to the election last week. We've expected that a lodging recovery is likely to be in lockstep with medical investments as it pertains to rapid testing, therapeutics and ultimately a widely distributed vaccination. Recent developments point to a recovery year in 2021 and we believe the recovery will be most pronounced in our core markets, highlighted by Washington DC, which is a historically strong market following an election year. New administrations bring jobs, increase lobbying on the hill, the likely return of higher rated foreign delegations and an overall increase in corporate and leisure travel. The Washington DC market has been an underperformer during the past few years, but we believe that a new administration will spark growth to the region aided by the aforementioned catalysts, reduced supply and the reopening of the city's unique demand generators. We've seen from prior years that the first quarter, following the election and January specifically, proved to be a very strong period in this market, whether it's an incumbent or a de novo president. During President Obama's second inauguration in 2013, our portfolio generated 23% RevPAR growth during the quarter. In the first quarter of 2017, following President Trump's inauguration, our portfolio RevPAR grew by 15% with 57% growth on the night of the inauguration. The upcoming inauguration is leading to early reservations across our portfolio at rates we have not seen in Washington DC in many years. We believe our unique portfolio in Washington spanning select service, independent and lifestyle and luxury is very well positioned to capture the increased demand to the market during the first quarter as well as throughout 2021. The recovery in 2021 is not just predicated on favorable comps and increased travel but also on deteriorating supply. We have already seen the headlines and consultant forecasts for New York City. 20% of New York's total hotel room count, about 25,000 keys could permanently close and every week we seem to be seeing this forecast come to fruition with another permanent closure. New York City is dominating the headlines but there are corners of every market filled with distressed assets that were troubled to produce margin growth even before the pandemic. These assets were functionally obsolete prior to the pandemic and their closures will improve the long-term supply picture in many of our markets.

The other side of the supply picture is the development pipeline. Recent reports from Smith Travel have showed a large increase in the number of development projects that have moved from either the planning or final planning stages into either the deferred or abandoned buckets. Industry experts believe this could equate to more than 13,000 rooms. Year-to-date through September, 211 projects in the US representing 56% decrease in the pipeline over the same period last year. These are staggering figures that could continue to increase as our industry works through the recovery and even mirror the great financial crisis when the supply pipeline declined from a peak of 212,000 rooms at the end of 2007 to 50,000 rooms in early 2011.

Before Ash takes a deeper dive into expense savings and burn rate reductions I want to spend a few minutes on our capital allocation strategy and sources of additional liquidity. As a quick reminder we have announced accretive binding sales agreements on four assets in our portfolio with total expected net proceeds of $70 million. We remain optimistic that these transactions will close but we have provided extensions to the buyers through Q1. With today's release we announced a fifth disposition, the Sheraton Wilmington, Delaware. We began this process in the summer and are very pleased with a relatively quick execution in today's environment. New Castle County of Delaware is acquiring the hotel for an additional $19.5 million in proceeds. This is about a 2% cap on 2019. These first five transactions are all smaller, non-core hotels and we are pleased with the pricing within 10% to 20% of pre-COVID values and at a combined 21 times EBITDA multiple on 2019.

Last quarter we discussed exploring additional asset sales if we saw improvement in the transaction environment. Across the last 90 days, even before the election or the vaccine, there has been a meaningful improvement in the availability of debt for higher quality, lower cash burn hotels. In addition to private equity firms, there has been an increasing diversity of buyers, credible family offices, international capital and new domestic entrance to hospitality. We assessed future sale candidates in our portfolio by triangulating buyer interest, capital requirements or age of hotel and expected growth rate. The additional five hotels we launched for sale in September and October are emblematic of our portfolio and are highly sought after in this environment. These simple hotels that have remained open throughout the pandemic are unencumbered of management and onerous labor contracts or are even unencumbered of brands and in some cases have assumable financing and are approaching break-even levels. These characteristics do make these hotels more valuable as visibility increases. We will see where values come out in the coming months and balance liquidity today with reversionary growth tomorrow. But judging by early interest, we do expect to complete several more dispositions across the next couple of quarters.

At this time we view hotel sales as the lowest cost alternative for capital today as discounted hotel sales provide relatively quick liquidity and do not encumber our capital structure or permanently dilute our equity. As you may know, the management and board of Hersha are among its leading shareholders and across this year we have continued to buy our common equity in the open market as we consider it a remarkable value for an exceptional portfolio. We've constructed a portfolio with high absolute RevPAR, sector leading margins and minimal capex requirements for the foreseeable future, all in the most valuable markets in the United States with few if any encumbrances. Our portfolio is both attractive to a vast buyer pool and still offers incredible operational and financial leverage to this recovery.

With that, let me turn it over to Ash to discuss in more detail our burn rate reductions and balance sheet.

Ashish R. Parikh -- Chief Financial Officer

Thanks Neil. Good morning everyone. This quarter's successful completion of our hotel reopening strategy that began during the second quarter and concluded with the opening of our two Ritz Carltons would not have been possible without the close working relationship we have with our third-party independent operator. Due to our focused service strategy we were able to comfortably restart our hotels with the confidence that we can attain GOP breakeven levels within 45 days of reopening. Results this quarter at our open hotels validated this confidence as the number of hotels that achieved GOP breakeven levels rose over the balance of the quarter. During July, 21 of our 28 open hotels broke even on the GOP line. This increased to 22 hotels in August and 25 hotels in September. Our team's expense saving and revenue management strategies also yielded positive EBITDA results for a portion of our open hotels over the course of the period. Once again during July, nine of our 28 open hotels achieved break-even EBITDA levels which increased to 11 hotels in August and 16 in September.

Our operational strategy allows us to run our hotels on very lean labor models until demand reaches levels warranting additional staffing. We're able to do this by applying various cost cutting strategies such as cross utilizing management personnel as well as outsourcing and job sharing within the hotel and across our clusters to lower our overall expense base. As demand begins to pick back up and occupancy levels start to improve from these low levels, we will begin to phase back in staffing levels and other operating expenses in a very deliberate and calculated manner. Our model allows us the flexibility to continue to operate our hotels at current staffing levels at our break-even occupancies approximating 35% all the way up to 55% and even 60% at some of our hotels. With our open portfolio generating 37% occupancy in the third quarter, we estimate that revenue from the next 20 percentage points of occupancy gains should drop down to the GOP line at 75% to 80% flow-through, generating outsized margin gains and highlighting the operating leverage inherent in our portfolio. We would anticipate seeing these gains in the first half of 2021 as the recovery progresses and margins should continue to see momentum as we get deeper into the recovery in the back half of 2021 and 2022.

We also anticipate labor force headwinds to be much more favorable over the next few quarters with reduced F&B and smaller ancillary service departments such as salons and spas. This development along with the various expense savings implemented by our asset management and sustainability teams such as grab and go breakfast options, reduced in-room amenities, housekeeping optimization and utility savings should bolster our margins through the recovery and post pandemic. We estimate that many of these changes will lead to a 10% reduction in housekeeping labor and our preoccupied room cost for items such as breakfast and in-room amenities. We also believe that there are significant opportunities to reduce our non-housekeeping labor expense. Through zero-based budgeting we've found ways to operate more efficiently and are confident that these savings will exist even when occupancies return to more normalized levels. As an example, we currently maintain an average FTE count at our hotels of 21 employees versus 60 FTEs in February of 2020. Employee counts will increase as occupancies rise but changes in our operating model should allow for additional labor cost reductions in the 5% to 8% range leading to sustainable margin expansion of 150 basis points to 200 basis points post-pandemic.

During the third quarter, steadily increasing occupancies and expense savings enacted during the prior quarter resulted in a reduction of our cash burn across the portfolio. Our property level cash burn ended the second quarter at $3.4 million and decreased sequentially over the balance of the third quarter with a $2.5 million cash loss on property in July and ending September with a $1.7 million property level cash loss. This brought total property level cash burn for the third quarter to $5.7 million, 25% below our forecast at the beginning of the period. At the beginning of the pandemic, our corporate level cash burn which includes all hotel operating expenses, corporate SG&A and debt service was originally projected to be $11 million per month. Our corporate level burn rate steadily declined over the six-month period ending in September reducing from $10.5 million for April to $6.6 million for July and ending the third quarter with a $5.9 million burn rate in September. Our corporate cash burn for the third quarter totaled $18.2 million, 32% below our second quarter burn rate and 27% below our initial downside scenario forecast.

Our third quarter and October results which saw occupancies advance over the period despite precarious COVID-19 conditions and fear of a post Labor Day headwind for leisure travel resulted in breakeven levels that improved since our second quarter earnings call. Based on this quarter's results and our forecast for the fourth quarter, we are comfortable that on a property level basis our entire portfolio breaks-even with a 65% RevPAR decline with occupancies approaching 35% to 40% and a 25% to 30% ADR decrease. At the corporate level, our RevPAR breakeven occurs at a 45% RevPAR decline factoring in 55% to 60% occupancies at a 20% ADR discount.

Transitioning to an item that is cash flow positive. After more than two years we've settled our insurance claim related to hurricane Irma which significantly damaged our two largest South Florida hotels the Cadillac and the Parrot Key hotel. During the fourth quarter, we expect to collect insurance proceeds between $7 million and $8 million which will be recorded in our fourth quarter results. During the third quarter we spent $5.4 million on capital projects bringing our year-to-date spend to $21.8 million. We anticipate a significantly reduced capex load for 2021, primarily focused on maintenance capex and life safety renovation, roughly 40% below our 2020 spend.

Since 2017, we've allocated close to $200 million for product upgrades and ROI generating capital projects across more than 50% of our total room count. Entering 2020 we had substantial built-in growth projections for our portfolio based not only on market demand trends but on these recent capital improvements driving new and loyal customers to our hotels which was unfortunately upended by the pandemic.

The majority of our rooms oriented transient hotels have been renovated to the tastes and preferences of today's traveler and with very minimal capex moving forward, our portfolio will experience very little disruption at the onset and through the recovery. As of November 1, we've drawn $126 million of our $250 million senior credit facility and ended the quarter with $20.2 million in cash and deposits. We remain very encouraged by the resiliency of the capital markets throughout this pandemic. The markets remain open and available at every tier of the capital stack and we've seen the first signs of traditional asset level financing from commercial and regional banks looking to deploy capital into the sector. We believe there is a significant amount of capital forming both on the debt and equity front that will be seeking attractive opportunities in lodging over the next several years and we're still in the early stages of this capital formation.

We continue to have an active dialogue with our bank group and we plan to accelerate conversations over the next few months regarding the parameters surrounding our covenant waiver test on June 30, 2021. Until then our lines of communication with our bank group remain open and constructive.

As highlighted in our earnings release last night we now have five assets under contract for sale. We remain in constant contact with suppliers of the four assets that we announced earlier this year and we recently granted the buyer of the Dwayne Street hotel an extension before in the first quarter of 2021 and this resulted in our receipt of an additional deposit of $500,000 for the transaction. As none of the buyers need material financing we remain confident these transactions will close in a timely fashion next year. Over the past week we went under contract for sale for the Sheraton Wilmington in Delaware for $19.5 million and we've received a material hard deposit from the buyer. We anticipate this sale will close before the end of 2020.

The proceeds from these five transactions will be utilized to pay down our debt and we plan to utilize any additional proceeds received from any of the five assets we currently have on the market for debt pay down and for additional working capital to bolster our liquidity. As we enter the final months of this unprecedented year for our company and our industry, we look toward our pillars of strength to navigate our passport, our unique owner operator relationship which has yielded significant expense savings over the past nine months, our cluster strategy which maximizes revenues and economies of scale while capturing unique demand opportunities in our market and the more than 20 years of experience in the public markets as a team for Jay, Neil and I. All the while we continue to explore various opportunities to fortify our balance sheet, to give the portfolio extensive runway as we navigate toward stabilized demand over the next several years.

This concludes my portion of the call. We can now proceed to Q&A, where we're happy to address any questions that you may have. Operator?

Questions and Answers:

Operator

We will now begin the question-and-answer session.

[Operator Instructions]

First question comes from Aryeh Klein of BMO Capital Market. Please go ahead. Mr. Klein, are you there?

Aryeh Klein -- BMO Capital Market -- Analyst

Sorry about that. Thanks. Good morning. It sounds like you haven't seen much impact from rising COVID cases, but as we move through the fourth quarter into the beginning of next year, can you talk about the impact of seasonality specifically on maybe occupancy as well as cash burn and whether or not that can still improve from what you've just seen toward the end of the third quarter?

Ashish R. Parikh -- Chief Financial Officer

Yes, sure. This is Ashish. For October, we really didn't see results that were maturely different than September, our occupancies and our cash burn was effectively the same for October as it is in September. From a seasonal standpoint, we would anticipate a little bit of a pullback in November and December. Historically, October is the strongest month of the quarter for our portfolio. I think that on the cash burn side we're not seeing anything today that would lead us to a material deterioration in cash burn for November and December. Like I said, little bit of a pullback just based on seasonality. We would anticipate that some of our resort markets especially in South Florida and in California will remain fairly strong throughout the fourth quarter and will really pick up steam in the first quarter.

Aryeh Klein -- BMO Capital Market -- Analyst

Thanks and then in New York City specifically a lot of the occupancy went away with frontline workers. So the 40% level we saw in the third quarter kind of a true or sustainable level here and how has ADR kind of evolved with the frontline workers going away?

Jay H. Shah -- Chief Executive Officer

Yes I can get started on that. We went from -- we had times during the summer where we were reaching 60% occupancy in New York as we were serving essential workers. It was at very low rates, but we were contracting at $90 to $100 and filling our hotels to 60% and it was a productive years of a period where there was very little demand in the marketplace. By August, most of that essential worker kind of demand dissipated and we've replaced it with what we refer to as kind of the new normal traveler here in New York. It is a mix of business and leisure and friends and family, but it was not enough to make up for all of the essential worker demand. So we've dropped from 60% to 40% in occupancy and there wasn't enough business travel in that mix to totally offset the loss in occupancy. So RevPAR did decline relative to the summer but has been -- ADR has been each month has shown improvement in New York from August, September to October. So, we're encouraged by the level of that, we can approach kind of break-even levels at this low level of demand in New York. But, we are still very much looking forward to the results from a more widely distributed vaccine and other therapeutics to really get business travel going. So does that answer your question Aryeh?

Aryeh Klein -- BMO Capital Market -- Analyst

Yes. That's helpful. Thanks for all the color.

Operator

Thank you. The next question is from Bryan Maher of B. Riley. Please go ahead.

Bryan Maher -- B. Riley -- Analyst

Yes. Good morning. So just a couple of quick questions. I think in your prepared comments you mentioned something about the pre-COVID business was kind of 25% leisure 75% gateway urban. What would you say that that is now in the fourth quarter? What do you think it will be in the first half of 2021?

Ashish R. Parikh -- Chief Financial Officer

Bryan, probably it tends toward 40% -- 45%, we don't have a precise calculation for you for Q4 or Q1 but we would expect that for it to be a meaningful part of cash flow production during those quarters, the most we can.

Bryan Maher -- B. Riley -- Analyst

And then, as we get this vaccine news that came out yesterday, we've heard a lot about the hotel closures in the city kind of that 20% number. Do you think that close to pace stalls as maybe some potential sellers decide to take a wait and see approach to if a vaccine will ramp up demand in the first half of 2021 and maybe we don't get that level of closures and it's something less like 10% or 15%?

Jay H. Shah -- Chief Executive Officer

Bryan, it is possible depending on how quickly the world starts traveling again but a lot of these hotels I'd say, the vast majority of that 25% -- 20% of the inventory was already not making money pre-COVID just the cost load with unionized workforces, older hotels that just weren't kind of the preferred choice but they were just not attractive to a lot of business travelers or differentiated leisure travelers and they were expensive to operate just because they were bigger, older structures that didn't. So I do think that most of these are going to close. Will they reopen in three, four years? I'm sure some will. They will be in a reformatted kind of -- it's kind of like that Grand Hyatt in Midtown East, it's taking 1200 rooms out, 250 rooms will come back, but there will be less rooms and it'll be more higher quality rooms. So I think for the next several years, we can count on meaningful reductions in supply, but it does depend, but I guess what's underlying that notion is that we feel like the recovery although the vaccine is good news, the election uncertainty is behind us, we still do believe that's going to be a couple of two to three still very challenging quarters in New York. And we believe that owners and lenders on New York assets have already found that for those kind of older big box hotels that have difficult operating structures, there is a higher and better use than losing a few bucks every year.

Bryan Maher -- B. Riley -- Analyst

Right, but I mean we were surprised when you see something like the Hilton Times Square closing I mean that's a hotel I mean it is a hotel, it's not like an old product that you convert to condos. For that to close in that location I just can't believe that it won't ultimately reopen maybe under new ownership. So just kind of thinking along those lines it's a little perplexing?

Jay H. Shah -- Chief Executive Officer

No, I think that's possible there will be some that will reemerge, but I think what we've seen like the nine that have been announced so far those true permanent closures I don't see any of those reopening for example. But you're right, any kind of major recovery, if we have a hockey stick like recovery there will be less closures.

Bryan Maher -- B. Riley -- Analyst

And then last for me, of the five hotels that you have for sale, are buyers gravitating toward any particular asset type within those five?

Jay H. Shah -- Chief Executive Officer

Within those five we're getting a lot of good interest and they're all in different markets around the United States. So there's representatives from each of our markets nearly. There is branded and independent hotels in that group of five. But what brings -- what is the commonality among them is, fee interest, real estate, unencumbered management and really high quality locations and real estate. And so, we're seeing good interest across all of those kinds of assets right now. You've probably seen just kind of the, they're still not huge transaction activity in volume, but every month there's several more hotels trading in markets like ours and assets like ours. And so, we have seen a turning point for at least this kind of asset in the transactions market.

Bryan Maher -- B. Riley -- Analyst

Great. Thank you.

Operator

Thank you. Next question comes from David Katz of Jefferies. Please go ahead.

David Katz -- Jefferies -- Analyst

Hi, good morning everyone. Thanks for all of the detail and perspectives. As we look out geography wise, and I know you've talked about obviously in the prior question New York and what your ultimate views are. In a post-COVID world, I wonder if we could think out loud about which markets you would like to be in that you are not and whether there is prospect that you could trade out of some and into some others given that everyone's perspective on life may have changed just a little bit.

Ashish R. Parikh -- Chief Financial Officer

David I hesitate to, I think we all hesitate to make a major shift in focus because of this event. It's clearly going to change the world. There will be impacts, there will be new trends. It will accelerate some older trends. But we do not think that cities are dead. We do continue to believe that leisure and business transient oriented hotels will be attractive. But to your point we do have, we're potentially over-exposed to New York City and it remains our largest EBITDA generating market pre-COVID and that will balance as our assets in South Florida ramp up and some of our other renovations ramp up but it is an area that we would consider additional asset sales in that marketplace. We've seen across the summer, we've seen three or four transactions of similar kinds of assets, non-union, cash flowing, newly built assets. And we do see the market thawing a bit, but I'd say that New York is still six to 12 months away from kind of rational pricing of new investors into the marketplace. Now with the news of the last three to five days that could change quicker, but where we stood November 1st, we felt like a handful of markets required a little more visibility to get good returns from a marketing process. I would put Manhattan in that camp. We'd put Seattle in that camp, but that said we continue to stay close to the market. There is one of the five assets that we are marketing today is in New York City and as the market starts to improve and we start to see more visibility and we achieve kind of breakeven levels on that portfolio, I do expect that next year we will sell additional hotels in New York City, but the time feels like it's still a couple of months away.

David Katz -- Jefferies -- Analyst

Understood and if I can just ask a follow-up. With respect to your comment earlier about things changing over the past 90 days in terms of the ability to sell hotels, I wonder what insight there might be around whether it is the inclination of equity, meaning some notion that we've approximately bottomed or is it more on the debt side, the availability of debt capital that is the primary driver or some combination thereof?

Ashish R. Parikh -- Chief Financial Officer

It's some combination thereof, but it's for the same reason. It's just visibility and for equity to have visibility on the levels of cash burn expected for an asset and for lenders to be able to think through that visibility as well and to consider how much cash reserves they need and the like. But what's been, I think as the summer, with each month of the pandemic as we got to kind of month six after the pandemic month seventh of the pandemic you were seeing that select service hotels, some extended stay hotels, some kind of smaller format independent hotels were able to reach breakeven levels. And in these kind of really high quality forever markets, lenders were attracted to getting spread on this kind of really high quality real estate that they never had the opportunity to play in. And so, you're seeing lenders not -- you're seeing banks and regional banks, but you're seeing a lot more credit funds and credit funds used to be in the business of transitional loans. So they were doing higher octane loans to help you do a redevelopment or to take up something that required a lot of ramp up. In today's world the whole world is transitional because there isn't a lot of income and now credit funds are finding that they raised a lot of capital and they have the ability to get 500 point to 600 point spreads above LIBOR and get into some great assets. And they feel like across the next year or two they would be able to securitize them or sell them or cut them up and some of them are actually doing it very quickly and doing it within a month or two. And so, we're seeing the market develop on the lending side and that was probably, that's what it required for us to go to market with some of our chunkier hotels because you did need a rational debt market to sell hotels $50 million to $100 million [Phonetic] in value. So that was the turning point for us but that is a function of visibility in cash burn which has been coming down across this period.

David Katz -- Jefferies -- Analyst

Got it. Thank you very much.

Operator

Thank you. The next question is from Tyler Batory of Janney Capital Markets. Please go ahead.

Jonathan Gold -- Janney Capital Markets -- Analyst

Hi good morning this is Jonathan on for Tyler. Thanks for taking our questions. First one from me, looking at the COVID vaccine announcement yesterday and I know it's early days, but how do you think the conversations with lenders will change for the industry now that a vaccine is on the table in terms of leniency they'll provide or on things like debt covenants?

Jay H. Shah -- Chief Executive Officer

Yes Jonathan I think it's more the outlook as Neil mentioned. I think that this is a very good piece of news and we believe that over the next few months there will be additional good news on both vaccines and therapeutics. I think the lending community will look at this and say, look we do see the light at the end of the tunnel, it just got a lot brighter and with a portfolio like ours, you look at cash burns that should be going down precipitously as they have been. And I absolutely think it makes the discussions easier. It's not -- these have not been contentious discussions throughout this pandemic. The markets have remained open. The lenders have been very supportive, but at the same time seeing improving trends on the medical side is going to be a very big tailwind for everybody to get their covenants restructured and their debt in place to get through this pandemic.

Jonathan Gold -- Janney Capital Markets -- Analyst

Great, thank you. And then, switching gears, can you just provide some color on the booking window you're seeing, and if you've seen if any expansion in that as we moved into the fall month?

Ashish R. Parikh -- Chief Financial Officer

Yes, unfortunately not much improvement on booking windows at least for kind of mid-week travel and the like even weekend travel is still pretty last minute. We are encouraged by Christmas and New Year's week in South Florida. I think we'll start to see some uptick in some of our other resort markets for that period of time as well. We mentioned in some of the prepared remarks that we are booking out to inauguration in Washington and we have been surprised. I'd say we were very pleasantly surprised, like Monday, we were talking to our sales team because it feels like the election just happened, but like immediately the amount of bookings that came through for our entire Washington D.C. portfolio was remarkable just in a handful of days. So we've reached nearly north of 70%, 80% occupancy mid-week of inauguration at all of our hotels in Washington and demand is still building and ADRs as I mentioned in the prepared remarks are really impressive. So we're -- for these kinds of special events, special holidays, you are seeing advanced bookings, but for the everyday transient traveler which pre-COVID might have been giving us 10 days to 20 days of visibility maybe 7 days to 15 days of visibility, today is more like one to two days and it remains challenging.

Jonathan Gold -- Janney Capital Markets -- Analyst

Okay, great. Thank you for all the details. Very helpful. That's all for me.

Operator

Next question comes from Chris Woronka of Deutsche Bank. Please go ahead.

Chris Woronka -- Deutsche Bank -- Analyst

I will ask you a easy high-level kind of theoretical question. As we begin to think about the brands having to maybe focus more on conversions and the soft brands to get their unit growth to where they want it to be in the next couple years. Do you worry at all about broader commoditization trends within the industry and you guys have an independent portfolio, you have brands, you have soft brands and so I think you guys are kind of uniquely well positioned to speak about this. I mean, how much of a concern is that that you can create as many brands as you want, but ultimately you have a hotel room and if it's a good product it's going to compete on price and location?

Ashish R. Parikh -- Chief Financial Officer

Yes. We tend toward that view Chris. We do think that in the end of the day it is location, quality, differentiated experience that you can deliver in a hotel through design or through service. And we do believe there's an advantage for newly built hotels among most travelers. But brands are important and I think they're even more important for B assets or B locations. If you have a great location and a differentiated product it's a little less of a driver of performance. But in markets and locations where you need a advantage to offset some other issues then the brands have been very helpful. I think across the last three to five years, we've seen just the brand proliferation truly kind of confuse consumers but it has built more frequent, say, members for all of these brands. So it is a significant channel. If you're already paying fees to a brand that channel comes for free and provides 40%, 50% of your booking, so there's clear value there. But I think that a lot of owners have seen that they can operate in a independent format and get advantages not only on cost, but really on the rate side even. And so there is not one answer that fits for the sector. But for us we do feel we are unique, we are much more focused at the asset level, we are really happy with our brand relationships but it will be, we would be disappointed to see a lot more unit growth from the brands through conversions. But we've seen this before and so with new development and they're driven by unit growth and so we expect that it may come, but we don't think that we're particularly vulnerable to it. Frankly, we feel like our [Indecipherable] our assets and allow us to go independent in a lot of locations if we became very concerned about the contribution for brands vis-a-vis their fee structure.

Jay H. Shah -- Chief Executive Officer

But Chris, I should acknowledge one thing is that we've had a good performance from our independent hotels throughout this period, but the branded hotels, the things like the employee rate program which used to be a real thorn in our side, pre-pandemic where you had to a lot inventory at $79 or $99 in great markets, those things have actually been a bit of a benefit throughout the summer and throughout the fall. So we have done for some of really the Cadillac, we do some very attractive redemption business these days for their frequent stay program and we are getting some of these different brand channels that have been productive, but you asked an easy question, I gave you a pretty convoluted answer, but it's just we see benefits in running independent hotels and branded hotels and we make a decision based on a particular location and asset.

Chris Woronka -- Deutsche Bank -- Analyst

Okay. That's very helpful. Appreciate all the detail. That's all for me. Thanks.

Operator

Next question comes from Michael Bellisario of Baird. Please go ahead.

Michael Bellisario -- Baird -- Analyst

Good morning everyone.

Ashish R. Parikh -- Chief Financial Officer

Hey Michael.

Michael Bellisario -- Baird -- Analyst

Big picture question, kind of a follow-up to the last one but as you guys look out a few years, I know that's really far away but what do you envision the portfolio looking like especially as you're considering asset sales now? I know you talked about lower New York City exposure, but is it more branded, independent, select service, full service, are there new markets? Do you exit any markets, really what the shift in the portfolio composition that you're thinking about today as you look forward?

Ashish R. Parikh -- Chief Financial Officer

Michael, you know our portfolio. We do have a kind of hybrid model. We really appreciate the margin and the lower cash burn of select service, but we do very much appreciate and enjoy the higher growth rates and the higher kind of net EBITDA for key profitability of some independent lifestyle hotels and some higher end hotels when markets are recovering. And we do like that balance and we like having that balance in most of our markets and we like to cluster around that so that you can, I think it was a case in point kind of how we were able to reopen hotels across the last six, seven months by having that kind of mix of assets. We were able to start with limited service and then bring in independence over time and then finally in the last month or two open our luxury hotels; all the while ensuring that we were opening in lockstep with our goals around a GOP breakeven within 45 to 60 days. And so I think that flexibility and having that mix of assets serves us well and it's one that we will continue to have in our portfolio. I think, if we look out 12 months let's say, I would expect that we would have less New York City contribution, but across the rest of the portfolio what we're selling is kind of representative of the portfolio. So if anything we're just selling assets are a little bit older, a little bit more stabilized but they are in each of our markets.

So I think you'll continue to see South Florida, the West Coast, Boston, Washington, Philadelphia and New York in our portfolio mix. There will just be several less assets in each of those markets a year from now is kind of the current thinking. I think, the only market that we consider like more significant sales is New York as we've discussed. So that's kind of -- we'll continue to be very focused on, I think this cycle has clearly shown the importance of fee interest real estate. For years there was like this notion that ground lease doesn't matter because it lasts longer than your lifetime, but that's just not the case. Ground leases are very often highly inflexible leverage and it makes it very difficult in difficult times like this to refinance assets or to bring in new investors and the like. I think we'll continue to remain focused on hotels that require less capex over time and we will continue to be active recyclers of assets so that once it's at that point where it requires more meaningful capital we will trade the asset. I think these are the features that are -- they're attractive to hotels when you're selling them. It kind of leads to a portfolio that is more liquid we think than most of our peers and we think it's the kind of portfolio that actually is very attractive to lenders, like we've been talking about the credit facility. I think you have to keep in mind that what [Indecipherable] is cash flow. They are not doing that many gymnastics about total debt right now or debt to EBITDA right now because EBITDA just so far off from reality. So it's replacement cost. It's cash flow and so we'll continue to be a company that focuses on assets that can cash flow in what seems like a very volatile world.

Michael Bellisario -- Baird -- Analyst

Got it. That's very helpful and then just one quick follow-up for Ashish back to your commentary about lender discussions. Where does the preferred fit into that mix today and how are you thinking about that?

Ashish R. Parikh -- Chief Financial Officer

Yes. We've had conversations with some of them about this and I think that when we go back in 2021, there will be some discussions on catching up the accrual whether it's 100% or just starting a program where we catch up the dividend accrual on the preferred and I can't say if it's in the first quarter or second quarter. But I think that the lending groups will be amenable to that.

Michael Bellisario -- Baird -- Analyst

Thank you.

Operator

The next question comes from Anthony Powell of Barclays. Please go ahead.

Anthony Powell -- Barclays -- Analyst

Hi, good morning. Just a question on how did Airbnb and other inventory kind of evolve over the summer and fall in your markets and do you see inventory come back in any urban markets over summer and fall and how is it -- potential [Phonetic] impacts to your portfolio?

Ashish R. Parikh -- Chief Financial Officer

I've read that there was 35,000 room reduction of Airbnb rooms in New York City. We've heard of very meaningful reductions in Miami and in California. I think the momentum that had started around kind of regulating and more closely monitoring and overseeing Airbnb's activities in major cities continued throughout this entire pandemic. I think the affordable housing lobby will continue to be a standard bearer of this fight along with hospitality. Yes, the taxes and like. So we do think that there has been reductions that we've just, we're not quoting anything in our scripts and things related to it because we're just not sure how credible the data is that we're reading but we've seen, we saw something else that like 70% of Airbnb inventory is technically illegal to New York and so that's going to lead to -- so there's a lot of energy and momentum there and I think we'll see that in this recovery in New York because that we called it shadow supply in 2014 and 2015 and 2016. I think it took until 2017, 2018 to really realize that this was hurting our business very meaningfully.

Jay H. Shah -- Chief Executive Officer

Yes, Anthony while speaking on that, with the planned IPO of Airbnb we would hope that there's additional disclosure and additional transparency on their part to limit the amount of kind of illegal rentals that have been happening across all these markets.

Anthony Powell -- Barclays -- Analyst

Right. Makes sense. And just stepping back what markets are more important for you for international inbound? I'm guessing New York is one, Miami, any other markets to call out and when do you expect you may start seeing some of the international restrictions starting to be lifted next year?

Ashish R. Parikh -- Chief Financial Officer

Yes. All of our markets are pretty significant kind of international inbound and that was one of the drivers of our portfolio construction frankly. But New York and Miami are the most significant. New York is about 20% kind of, our business pre-COVID was international of some kind. In Miami which actually has much even more international airlift, it was still, for our portfolio was still only about 10% to 15% of our business mix pre-COVID. The other markets that are notable on the international were California, Coastal California, LA, as well as the coast particularly from the UK, but also other international travel. And then Seattle was a market that got a lot of international travel from Asia and elsewhere. I think we used to always tout Philadelphia and San Diego because they were the two highest growth international markets. They were coming off of low bases, but they were markets that we were seeing 10%, 15% kind of international growth year-over-year due to airlift and just the world discovering these more mid-sized cities. So international is a very significant part of our business. When do we expect it to turn? I think the vaccine is absolutely going to help and we're seeing it in Miami at least in South Florida, you do have flights returning now. We have multiple flights a day from Brazil and Colombia and Peru, all of the Caribbean islands, Mexico. And so there is business travelers coming back and forth right now because of business they have in the region and there's a little bit of leisure travel, but not a lot. But when will it return, I think it will, it's just we're not sure Anthony, like it's really we're not counting on it until the back half of 2021, maybe this vaccine accelerates it a little bit, but we do think that international travel will be slow to recover.

Anthony Powell -- Barclays -- Analyst

Yes. There is talk about like various air bridges from new York to London and whatnot starting around getting the I'm guessing that but a variety of reasons that may be pushed back, but I don't know, obviously London is in a lockdown now there's portable transition. So I'm not sure if that's still on the table or not?

Ashish R. Parikh -- Chief Financial Officer

Yes. I have not heard of it being off the table again, but it is possible because both cities have stresses that they're dealing with related to COVID. Yes there is -- in New York we're still not seeing a lot of international travel. There is -- it's still been very slow to develop Anthony.

Anthony Powell -- Barclays -- Analyst

Okay. All right. Thank you.

Operator

Next question comes from Bill Crow of Raymond James. Please go ahead.

Bill Crow -- Raymond James -- Analyst

Yes. Thanks. Good morning. Neil, you and your peers are delivering some pretty impressive cost cutting and two-part question on that. Number one is, we're coming off the end of a long cycle in 2019 and we're obviously at depths we've never seen before. So how much of the cost cutting is just a matter of maybe we had gotten a little bit content and a little bit fat and happy in 2019, not necessarily talking about your specific operators. But as an industry overall, was the room there to cut that's just low hanging fruit? Then the second part of the question is really, how long do we have before we see amenity creep before this pie eating contest for the brands starts to rollout additional perks for guests and things like that? Thanks.

Neil H. Shah -- President and Chief Operating Officer

Bill, if I could get us started and we do think that in lodging cycles toward the end of cycles, in order to kind of win market share and to retain guests you do start to layer in a lot of the amenities and a lot of VIP giveaways and frequent program, frequent stay program tchotchkes and special items. You do start to feel like you need to have bell staff at select service hotels because you just need to kind of keep all the demand in control and move people in and out of the building. You start to get tempted to have water in every room and have cookies at the front desk, and it definitely happens over time. And so there was clearly room to cut but this provided a true opportunity for zero-based budgeting. We were able to just kind of go to zero and then restart these hotels with four people, with five people and the brands were very, I have to give them credit, at least in the franchisee model they were very flexible with how owners provided what they considered to be critical services or critical offerings. We all moved from breakfast buffets to go-bags and they were not very prescriptive in exactly how to do that. And so we had the flexibility to really cut very deeply and then as we've kind of reached, as we started to add occupancy, we've clearly had to add more teams back and we've started to, the guest expectations have started to include in certain hotels to have a bar open or to have some food items available for breakfast and for dinner. And so, we are slowly bringing those things back but they've been driven by the kind of business and the customers on the ground. It still hasn't been something that brands are pushing. I think what we'll start to see early next year is probably, from most of the brands just a little bit more guidance around how they want to see food and beverage delivered and served. And they may start to require that the to go-bags [Phonetic] have particular branded items in them that there is a certain level of -- after a certain level of occupancy you do need to have an additional staff person available during breakfast or during evening time. So you could see some of that coming back. We think that we're not hearing from the brands, it's going to be immediate and a major focus but we would expect across 2021 there will be some of those things will start to come back.

But as Ash mentioned in his kind of prepared remarks, we do think that there is some real permanent savings here and it's primarily on the labor side, but it does include the things that we used to put in our rooms for the brands. And so, we think it is very reasonable to assume that across the next three years of the recovery that a 100 basis points to 200 basis points of margin advantage is possible for even a super lean portfolio like ours because as we have always run a pretty tight ship. But even for a portfolio like that we think that there is meaningful margin advantage for the next three years let's say.

Bill Crow -- Raymond James -- Analyst

I appreciate the answer. Thank you. That's it for me.

Operator

This concludes our question-and-answer session. I'd like to turn the call back over to management for closing remarks.

Neil H. Shah -- President and Chief Operating Officer

Great. Well, thank you. With no more questions we'll say thank you again. Jay, Ash and I are all here in the office in Philadelphia if anyone has any further questions and we are looking forward to seeing all of you at upcoming investor conferences. We have Nareit and then three sell side conferences coming up. So we'd look forward to seeing all of you soon at least across the screen. We'll see you soon.

Operator

[Operator Closing Remarks]

Duration: 70 minutes

Call participants:

Greg Costa -- Director of Investor Relations

Neil H. Shah -- President and Chief Operating Officer

Ashish R. Parikh -- Chief Financial Officer

Jay H. Shah -- Chief Executive Officer

Aryeh Klein -- BMO Capital Market -- Analyst

Bryan Maher -- B. Riley -- Analyst

David Katz -- Jefferies -- Analyst

Jonathan Gold -- Janney Capital Markets -- Analyst

Chris Woronka -- Deutsche Bank -- Analyst

Michael Bellisario -- Baird -- Analyst

Anthony Powell -- Barclays -- Analyst

Bill Crow -- Raymond James -- Analyst

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