RLJ Lodging Trust
NYSE:RLJ
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Mastercard Inc
NYSE:MA
|
Technology
|
| US |
|
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Walmart Inc
NYSE:WMT
|
Retail
|
| US |
|
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
8.77
12.2
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Mastercard Inc
NYSE:MA
|
US |
|
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Walmart Inc
NYSE:WMT
|
US |
|
|
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
RLJ Lodging Trust
You don't have any saved screeners yet
Welcome to the RLJ Lodging Trust Third Quarter 2020 Earnings Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions.
I would now like to turn the call over to Nikhil Bhalla, RLJ's Vice President and Treasurer of Corporate Strategy and Investor Relations. Please go ahead.
Thank you, operator. Good morning, and welcome to RLJ Lodging Trust 2020 third quarter earnings call. On today's call, Leslie Hale, our President and Chief Executive Officer, will discuss key highlights for the quarter; Sean Mahoney, our Executive Vice President and Chief Financial Officer, will discuss the company's financial results; Tom Bardenett, our Executive Vice President of Asset Management, will be available for Q&A.
Forward-looking statements made on this call are subject to numerous risks and uncertainties that may lead the company's actual results to differ materially from what had been communicated. Factors that may impact the results of the company can be found in the company's 10-Q and other reports filed with the SEC. The company undertakes no obligation to update forward-looking statements.
Also, as we discuss certain non-GAAP measures, it may be helpful to review the reconciliations to GAAP located in our press release from last night.
I will now turn the call over to Leslie.
Thanks, Nikhil. Good morning, everyone, and thank you for joining us. We sincerely hope that you and your loved ones continue to be healthy and safe. We also remain deeply grateful to our hotel associates who are on the front lines and continue to help us navigate the multiple facets of the crisis that our industry is facing.
During the third quarter, we remain focused on executing on all fronts to bolster our liquidity and position the company for an eventual recovery. We reopened a significant number of hotels in a disciplined manner and continued our aggressive asset management efforts to minimize operating costs, which led to a further reduction in our burn rate.
Our execution has positioned us with long-term growth opportunities that will allow us to achieve relative outperformance throughout our recovery. In light of the continuing backdrop of this pandemic, we are encouraged by our third quarter results, which exceeded our expectations, as we benefited from the location and type of hotel in our portfolio.
We saw continued relative strength in leisure demand and an uptick in various pockets of corporate and small group demand, albeit from a very low base. We are pleased to see that these positive trends continue through October. During the third quarter, leisure demand continued to improve sequentially, reflecting the easing of restrictions nationwide, which drove industry weakened (00:03:05) occupancy to the highest levels of this pandemic.
We were also encouraged to see initial signs of demand in business transient from industries such as defense, technology, insurance and healthcare, among others, and also in small groups such as pop up weddings, training sessions and sports teams. While both corporate transient and group remain anemic, the increased demand from these segments contributed to the lift in occupancies throughout the quarter.
With respect to RLJ, our open hotels achieved 37.1% occupancy during the third quarter and saw sequential improvement each month, highlighting our ability to capture a significant portion of the limited demand that exists today. For weekends, which have now expanded to include Thursdays, our open hotels achieved nearly 50% occupancy compared to 33% for weekdays.
Our relative performance speaks to the benefits of our overall portfolio construct and diversification, including a concentration of resorts, drive-to markets, and select-service assets. Our portfolio is proving to be especially advantageous as it appeals to guests who have the ability to work from anywhere, prefer larger living spaces, and have a desire to minimize external dining, which comprises the majority of demand that is available today.
Because of our portfolio's appeal, our resort hotels achieved over 50% occupancy and our select-service hotels achieved over 40% occupancy. Many of our notable drive-to markets such as Charleston, Southern California, and South Florida achieved occupancies of 47%, 40% and 37%, respectively. Additionally, our all-suite hotels, which represent nearly 50% of our rooms, achieved about 40% occupancy.
These hotels have always been popular among families and leisure travelers, but now provide a significant competitive advantage by offering the space and amenities to allow guests to work remotely. As a testament to their tremendous value, our all-suite brand such as DoubleTree, Residence Inn, and Embassy Suites achieved a combined third quarter RevPAR index that was 16 points ahead of our competition.
And finally, our hotels have historically been preferred by small groups, which is perfectly aligned with a limited group demand that is available today. Therefore, we are well-positioned to benefit from the uptick in small groups. The improving momentum across our portfolio allowed us to reopen an additional 27 hotels during the quarter and reopen another 3 hotels subsequent to the quarter. We now have 96 of our 103 hotels open. Our seven hotels that remain suspended consist of our urban full-service hotels in markets such as New York and San Francisco, as well as three cluster hotels. We will evaluate the reopening of these hotels based on demand and casual potential.
As the occupancies at our open hotels indicate, our portfolio orientation is enabling us to weather the pandemic, allowing us to maintain a burn rate as nearly half of our full-service peers on a per key basis. As we continue to navigate this crisis, preserving liquidity remains our number one priority. We have continued with our aggressive cost-containment initiatives, including maintaining minimal staffing levels, keeping most F&B outlets closed and maintaining only essential services.
Not only have these cost-containment efforts remained in place and limited our burn rate, they also have added incremental efficiencies in many areas, which may allow us to return to our pre-pandemic profitability sooner. Our third quarter cash burn was 30% lower than our expectations due to a combination of higher-than-expected revenues at open hotels, more hotels reopening and the continued success of our cost-control initiatives.
Our burn rate improved throughout the quarter as our entire portfolio achieved positive growth operating profit and our open hotels exceeded our expectations and generated positive EBITDA during the quarter. The success we experienced in reducing our burn rate through the third quarter enabled us to once again lower our monthly cash burn estimate by $2.5 million at the midpoint of our prior outlook.
With respect to the fourth quarter, we've been pleasantly surprised that we did not see the normal post-Labor Day leisure demand drop-off and that our occupancy levels continue to improve through October. However, despite seeing an uptick in business transient and small group demand in select markets, the outlook for the remainder of this year has become increasingly uncertain. With the rates of COVID infection accelerating during what has historically been a slower period of travel, as we get deeper into the winter months, we have little visibility into what action states and local jurisdictions may take regarding additional social distancing and other restrictive measures, which would hamper the demand trends we saw in October.
Now, looking ahead, we are well-positioned to not only continue to navigate the current environment and benefit early in the recovery, but also to outperform throughout the next lodging cycle. During the early recovery phase, our lean operating model and the concept of our portfolio will have key advantages. Our transient-oriented hotels will continue to benefit from leisure demand as well as the recovery in business travel as it unfolds. Our select-service and compact full-service hotels, which have smaller footprint and are less complex operationally, will allow our hotels to minimize our cash burn, and our lean operating model will allow us to achieve breakeven and profitability faster.
More importantly, our portfolio is poised to outperform throughout a sustained lodging recovery, given first our liquidity of approximately $1.2 billion and lower burn rate, which should enable us to emerge with a healthy balance sheet and minimize the need to raise unattractive capital. Second, our large asset base, which provides significant optionality relative to recycling capital without meaningfully shrinking our EBITDA base. Although we do not have a need to sell any asset, we remain active portfolio managers and will evaluate selective dispositions that create incremental capacity for growth.
Third, our pre-pandemic portfolio transformation improved the long-term growth profile of our portfolio, which will allow us to thrive throughout a sustained recovery as the business transient and group segments return. And finally, our growth throughout the next cycle will be amplified by unlocking our embedded growth catalysts.
We have finalized plans to initiate the conversion of the Wyndham Santa Monica and The Mills House in Charleston beginning in 2021, and we are continuing to advance plans and timing for the other conversions. These catalysts position us for both internal and external growth.
With respect to external growth, we expect to be in a position to deploy growth capital as recovery takes hold, and we are already exploring investment structures that will allow us to be active. Our history of successfully raising capital as a private equity firm, deep industry relationships, proven ability to source attractive off-market deals and our disciplined and thoughtful approach to unlocking value in each transaction will enable us to pursue external growth.
That said, as we steer through the current period of uncertainty, we remain sober that there is a long road ahead until the industry recovers to pre-COVID profitability. The trajectory of which will depend on the efficacy of a vaccine. However, I could not be more confident in our relative position and the value of our platform, which should enable us to emerge in a position of strength post pandemic.
I am sincerely grateful to the entire team whose relentless focus on the solid execution of our portfolio transformation last year and managing effectively through the pandemic this year has placed us in a position to generate significant long-term shareholder value.
I will now turn the call over to Sean for a more detailed review of our financial results and liquidity. Sean?
Thanks, Leslie. We were pleased to see a sequential improvement in industry fundamentals during the third quarter and early indications of returning business transient and group demand, which continued throughout October.
Turning to the numbers, despite still having 10 suspended hotels throughout the third quarter, we will continue to include all 103 hotels within our reported results. Our overall occupancy during the third quarter was 29.3%. However, we saw sequential improvement each month with 24.2% occupancy in July, 30% in August, and 33.7% in September.
The third quarter results for our open hotels were meaningfully better with occupancy of 37.1% and average daily rate of $119, resulting in RevPAR of $44. We were especially pleased that our open hotels generated $2.2 million of positive EBITDA during the third quarter, driven by positive EBITDA during August and September.
Our monthly open hotel occupancy sequentially improved during the quarter at 32.6%, 38.4% and 39.9% in July, August, and September, respectively. We currently have 96 of our 103 hotels open. We are encouraged to see that early fourth quarter demand exceeded our expectations and accelerated after Labor Day.
In addition to October leisure demand remaining healthy and business transient and groups showing early signs of recovery, our portfolio also benefited from unexpected demand relating to the storms in the southeast and wildfires in the west.
During October, our open hotels generated occupancy of approximately 41% and ADR of approximately $115, which was in line with our open hotels' ADR in September. We would expect to generate positive GOP for the fourth quarter if October trends continue. However, rising COVID-19 infection rates could reverse recent demand trends during November and December. Our ability to quickly return to positive GOP is a good representation of how our portfolio can perform during a sustainable recovery.
Turning to the bottom line, our third quarter pro forma hotel EBITDA and adjusted EBITDA were negative $12.3 million and negative $19.2 million, respectively, and adjusted FFO per share was negative $0.32. As Leslie mentioned, we remain committed to monitoring operator compliance with the aggressive cost-containment initiatives that we instituted at the outset of the pandemic. Underscoring our relentless focus on controlling costs, our third quarter total hotel operating costs declined approximately 60% versus last year. Our team was vigilant on controlling variable costs during the quarter, resulting in a 66% reduction in wages and benefits from prior year.
Additionally, as demand stabilized, we were able to continue operating the hotels with minimal operating costs during the third quarter. Specifically, third quarter revenues increased over 155% from the second quarter or approximately $51 million, while our operating costs only increased approximately $21 million or 28%, which allowed our portfolio to increase the bottom line by approximately $30 million, representing strong flow.
As you would expect, our team remains focused on cost-containment initiatives to minimize cash burn in the current environment. Moreover, the cost efficiencies we realized during this period have positive implications for margins during a sustained recovery.
Turning to liquidity, I would like to re-emphasize that we entered the year in a strong position with approximately $900 million of cash and an undrawn line of credit. With this strong liquidity, our efforts continue to be laser focused not only on ensuring that RLJ maintains adequate liquidity to withstand a protracted period of disruption, but also ensure that our portfolio is well-positioned to take advantage of opportunities to drive outperformance in the recovery and beyond.
To that end, while we have continued minimizing capital allocation initiatives until we have more clarity on fundamentals, including certain ROI projects, we were able to successfully complete our in-flight 2020 capital projects and we'll continue to prioritize high-value projects such as the addition of new rooms in Emeryville and Buckhead, conversion of Mandalay Beach, as well as our parking initiatives.
We were encouraged that our third quarter monthly cash burn was significantly lower than expected, which was driven by our portfolio generating positive operating cash flow during the quarter. Our third quarter average monthly cash burn of $13 million was 30% lower than our expectations at the beginning of the quarter, which was primarily driven by revenue at our open hotels, including the 27 hotels that we opened during the quarter was stronger than expected. And our cost-containment initiatives were more effective than assumed, with particular success in labor and benefits. The operating cash flow at individual hotels will differ by hotel type, location and other factors. Overall, based on our portfolio's lean operating model, our hotels operating shortfalls will continue to be substantially better than portfolios comprised of traditional full-service hotels.
For the other costs, our assumptions have not meaningfully changed for hotel fixed costs, primarily property taxes and insurance and corporate level outflows including dividend, debt service, and G&A These factors enabled us to reduce our cash burn estimates again this quarter.
Inclusive of the second and third quarters, our average monthly cash burn is now expected to range between $23 million and $27 million, which equates to approximately 48 months of total runway at midpoint. The change in our cash burn estimates reflect a $3 million reduction to the top end of the range and a $2.5 million reduction at midpoint.
Since providing our initial cash burn estimates in May, we have reduced the top end of the monthly estimates by $8 million and $5 million at midpoint, representing a cumulative April to December reduction of over $70 million from the high end of our initial estimates.
Our monthly cash burn is expected to be towards the low end of the range if fourth quarter lodging demand remains at current levels and the high end of the range if fourth quarter lodging demand contracts from current levels.
Although we expect our hotels to operate near or slightly below breakeven during the fourth quarter, the quarterly cash burn will be higher than the third quarter as a result of the timing of payments of senior note interest, insurance premiums, and property taxes. These estimates exclude RLJ-funded capital expenditures.
Turning to our solid balance sheet, we ended the quarter with approximately $1 billion of unrestricted cash, $200 million of availability on our corporate revolver, $2.6 billion of debt and no debt maturities until 2022. RLJ's significant liquidity provides us with four years of run way at the midpoint of the current monthly cash burn estimate, but ranks us among the best position lodging REITs to withstand a protracted period of limited hotel demand.
We continue to maintain significant flexibility on our balance sheet. As of the end of the quarter, approximately 83% of our debt is fixed or hedged and 84 of our 103 hotels are unencumbered. As we look ahead given the high degree of uncertainty, we continue to lack visibility on the timing and cadence of returning to pre-COVID-19 levels of demand. Therefore, we will continue to monitor lodging fundamentals, and based on the potential impact on our corporate financial covenants, determine if an extension of the covenant waiver period is needed. That said, we are confident that lodging demand will ultimately return to pre-crisis levels. In the meantime, we will stay nimble, and we'll react appropriately to the changing environment.
Despite all of the uncertainty facing our industry, RLJ remains well positioned with a flexible balance sheet, ample liquidity, lean operating model, and a transit oriented portfolio with embedded catalysts.
Thank you. And this concludes our prepared remarks. We'll now open the lines for Q&A. Operator?
Thank you. Our first question is from Michael Bellisario with Baird. Please proceed.
Good morning, everyone.
Good morning, Mike.
The first question for you on dispositions, I guess the question is really what changed in your view from 90 days ago, because it does sound like you'd consider asset sales today versus I think last quarter when you said you didn't need to sell assets or there was no rush to necessarily sell assets, can you help us bridge that gap and what may be changed in your view?
Mike, it actually hasn't changed. We don't have a catalyst to sell any assets immediately. We sold a third of our assets last year and did a lot of heavy lifting. We have strong liquidity. And in fact, you know, selling assets we would only sell assets in order to recycle those capital – that capital into growth opportunities. And if we were to sell assets today because of the covenant restrictions we have in place, it would have to go to pay down debt. And we did not enter this crisis with a debt situation, we entered it because of a revenue issue. And so, from our perspective, you know, we don't see a need to sell assets today. What I was saying was that as we, you know, see the recovery unfolding we may look to sell assets in order to recycle it for growth opportunities. But, I'm not indicating that we're selling today.
Got it. Okay. That's helpful. Thank you for clarifying. And then just on your 4Q outlook or maybe your near-term outlook. Previously, you were relatively cautious. Things seemed to have been earliest had progressed less bad since then. Can you maybe provide some more details on the main drivers of that delta and talk a little bit more about markets or segments that were better or worse than expected?
Look, I would say that yes, you were right, we did expect to see leisure travel dip off after Labor Day as kids went back to school, et cetera, and we just did not see that. We saw, in fact, we saw it accelerate and we saw it accelerate into October. As Sean mentioned in his remarks, October was up 41% which is acceleration off of September.
And it's really not one segment you can look at, Mike. It's a continuation of the segments that we saw in the third quarter. Leisure continues to be the dominant player here in terms of providing demand. We'll continue to see weekends relatively strong. And we're starting to see as we've mentioned an uptick in BT but we saw that in third quarter as well and small group as well. So it's not any one particular market or segment. That's different from what we saw in the third quarter. It's just that we didn't see the drop off that we had expected.
I'll let Tom add some comments around any particular markets.
Yes. So, Mike, we did see weekends continued to grow, as Leslie stated. And even to the tune where October weekend started to bridge the gap compared to September where we were up to almost 55% on weekend occupancy. So leisure was the dominant factor in regards to why October continued at that same pace. And even after Labor Day, September did well.
In regards to markets, we are seeing some uptick in corporate business in some smaller levels, but BT is happening some of our Northern California hotels, the likes of Abbott Labs, GE, Baird, Tesla, Amazon is starting to get on the road again. Government business is still continuing to come in at some of our hotels, which is more related to Raytheon, Boeing, and Northrop Grumman, and that's primarily in the Southern California market. And then South Florida outperformed as well primarily because of weekends leisure and we have the resort hotels that we spoke about in our script in Key West, Deerfield Beach in Miami. So, altogether we felt pretty good about what happened in September and October, and we did get some project business, it also helped us on a midweek/weekend with some of our extended stay hotels. So hopefully, that helps you with a little bit of the color around what happened in Q3 and what's currently happening in October.
Yes. Very helpful. Thank you.
Our next question is from Dori Kesten with Wells Fargo. Please proceed.
Thanks. And good morning. You guys mentioned that you're looking at various investment structures for eventual acquisition opportunities. I was just wondering if you can provide a bit more detail around what those structures could be.
Sure. Dori, what I would say is that, look, from our, you know, perspective, it's a sort of step back for a second. You know, given the lack of visibility, you know, preserving liquidity continues to be our number one priority, particularly given the complexity in the environment we're in as well as the unknown duration. You know, that said, you know, we do expect this location to create opportunities over time. It's going to be a slow ramp and it's going to be a multi-year window. So, we're looking at structures that will allow us to balance our priorities of preserving liquidity while positioning ourselves to be active in a part of the window that we might not otherwise be active.
And so, we're going to be disciplined and patient but we're looking at off balance sheet structures. It could be something like a JV and/or a separate account. As you know, we have experience in that from our prior life and the private equity. We would leverage third party capital to be active, and we would be able to use our industry knowledge and experience access to opportunities to create that venture.
Right. And can you also give us an update on the total scope of the Wyndham rebranding over the next few years, how you're thinking about the old (00:27:44)? And any potential timing on reinstating dividends if our assumption is that that demand is improving by the second half next year?
Sure, Dori. I'll start with the debt. I mean, as we entered 2020, we are – our base case plan was to refinance that debt at more attractive interest rates. The financing markets have obviously shifted as well as fundamentals, and so our view today that 6% debt is generally in line with market today and also has 5 year to 10 year left on it. And so I think our view based on where we stand today is that we're going be patient with respect to bad debt and be probably more opportunistic as we think about refinancing opportunities there as well.
In addition, you know, under our line of credit waivers, there's limitations on sort of where our new capital would get deployed, which would impact that as well because those assets are ring-fenced within our corporate structure. And then I'll turn over to Leslie to talk about Wyndham.
Yeah, Dori. You mentioned sort of the scope. As a reminder, we have eight Wyndham assets and if you may recall, we said earlier this year that we would start renovations on two of those assets and would start two more next year. Obviously that was shifted because of the COVID situation. And so, we have advanced our plans for those assets and will start two assets next year and then following two assets will be the following year.
So, the sequencing remains the same. It was just shifted by a year. What I would say though is that we've used this time and this window to continue to advance the negotiations and the plans. And so, Santa Monica and Charleston, those first two assets, these are assets that are you know, bull's-eye real estate and that we think will be well position to benefit from the shape of the recovery. In Santa Monica, we are looking at a moving that asset to an independent asset. It is a market that has historically supported independent assets that are well located and this asset sits seven steps from the pier. And so, we think they will do very well as an independent asset in that market.
And then in Charleston, we are in the throes of negotiating with a global brand to convert this to a lifestyle brand. And so, we feel very good about where we are in the progress of those assets. And we feel good about the positioning these assets will have coming out of the coming out of this pandemic.
Is there any update on the total cost of the ink?
That – Dori, this is Sean. We have not provided sort of an estimate of where the total CapEx is going to be there. But what I can say is our conviction around the value creation continues to be there. When you think about the ability for those hotels to gain share in excess of where they were before and benefit from the recovery. You know, that obviously is all part of our underwriting. But our confidence around the ability for those assets to create value is high. But we have not given a specific number around what the CapEx needs on that are going to be.
And in the current environment, Dori, too I would add that, you know, we've taken a look at unconventional business in this pandemic. And I think the Wyndham team has done a good job. For instance University of Pittsburgh we've located 100% occupancy at that hotel for the next eight months. And that's just the sign in regards to, you know, how to be creative in an environment that's a little bit different where you have different business demand.
Same thing in Boston, where we secured some room nights. So the Wyndham team is doing a good job in the current environment and making sure that we're landing pieces of business that can help us through with this current environment at the time.
Okay. Thanks.
Our next question is from Austin Wurschmidt with KeyBanc Capital Markets. Please proceed.
Yeah. Thanks everybody. Just going back to the Wyndham's for a minute, I'm curious what the measurements stick is on those Wyndham renovations given the potential tailwinds in the business leading into the next cycle. As I think those hotels were running 80% of index prior to the pandemic, I think you discussed getting maybe back to par. What's kind of the measuring stick that we should be looking at today as we think about that capital getting invested for the rebrands?
Sure. That's a great question, Austin. Our measurement stick is similar to what it would have been pre-COVID, which is how much market share can those assets gain and what does that translate to the bottom line relative to the incremental investment. We think there's two drivers of the value creation there. One is just incremental cash flow from gaining the share. The other is we believe that there's NAV appreciation from having affiliation with different brands as a result of the cap rate compression from that affiliation.
As a reminder on the pre-COVID levels, the share was actually 90%, not 80%, and our portfolio was about 110%. And so on pre-COVID numbers, that represented an upside opportunity of roughly $30 million on the top line and then you can apply whatever margin you want to that. But if you apply sort of our portfolio average, lower north of $10 million of incremental profitability just to get to portfolio average. I think our conviction around the upside potential from these assets is a little stronger than that and we believe that we should – we'll be stronger than average, but within our portfolio, but our underwriting only assumes that we get back to portfolio average and the math still works and is compelling.
I would also add, Austin. As we look to deploy capital in this environment, you know, we have to have some visibility into the returns, right? And our greatest visibility in terms of the risk return of deploying capital is in our own portfolio. And so, we have a high conviction in how we think these assets will ultimately perform.
No, that's really helpful and kind of goes into my next question, which was beyond the Wyndham's, you'd previously, you know, highlighted, I think, it was 20 hotels in total, so 12 ex the Wyndham's 00:34:05 that have near-term franchise expirations. And I was curious if the state of the current lodging environment or the timing of those expirations change the appetite to convert those hotels or whether or not the other opportunities you alluded to earlier supersede these internal, you know, these internal investments.
Leslie D. Hale - RLJ Lodging Trust
Yeah. I think another part of positive levels for us and was also just our investment in the Embassy Suites and particularly, you know, around, you know, various elements of those hotels, and I think that the pandemic has given us more conviction in terms of how appealing those hotels are because of the size of their base and the lobby space. And so, I would say that many of the ROI projects that we had articulated earlier, we have greater conviction in today as a result of what we're experiencing.
Austin Wurschmidt - KeyBanc Capital Markets, Inc.
And then just last one for me. On the joint venture, you know, opportunities that you're exploring. How far along are you in sort of negotiating or seeking out a partner? And can you give us a sense of maybe the scale of the venture?
Leslie D. Hale - RLJ Lodging Trust
Austin, it's really early. And so you know, I'm hesitant to sort of articulate the size and scale, but what I would say is is that, you know, we have the experience of having a private equity background. We bring a lot to the table from the standpoint of industry knowledge, access to deal flow, and a track record around buying and selling assets. And so, we feel pretty good about being able to attract the right capital. But I would also just like to articulate to you that, you know, we have the ability to be nimble that to the extent that market conditions evolve, and we can pivot to our own balance sheet as well. And so, you know, we really look at this as an opportunity to be active in a point in time where we might not otherwise be active. But if things change, we can always pivot to our balance sheet because we have the cash to be active on our balance sheet.
Austin Wurschmidt - KeyBanc Capital Markets, Inc.
Understood. Thanks for the time.
Operator
Our next question is from Chris Woronka with Deutsche Bank. Please proceed.
Chris Woronka - Deutsche Bank Securities, Inc.
Hey, good morning, everyone. I wanted to ask you about the closed hotels, I think there's seven, you said, still remain closed. It sounds like, if my math is correct, the cash burn on those was about, maybe, $14 million in the quarter. What's – do those – what's the indifference point on opening those? And is it significantly higher than where you're running on the other hotels?
Leslie D. Hale - RLJ Lodging Trust
Yeah. I mean, the hotels that we have, we have two in New York that are not open, two in San Francisco, one in the San Francisco that is open is under renovation and once the renovation is complete, we would open that. But those efforts, generally, large boxes, have high cost structures. And so remember, our objective here is simply to reduce our burn rate. And so, we have to be able to open those hotels in a way that brings down that burn rate.
And so, if you take New York for example, where you have a high cost structure, which is almost 2x our portfolio, at these low occupancy levels, we can't get enough rate to overcome that cost structure. And so, we really need to see a higher occupancy or the ability to garner a higher rate in order to justify opening those assets and that is – that's a matter of time.
If you look at New York, it feels, kind of, 45% of the hotels are still closed. So, this is – it's a market issue, not an asset issue for us. The other assets that are close are clustered assets in Houston and Chicago, where we have multiple assets on a single pad. Based on low occupancy we are – we are in, it's more strategic to push all that demand to fewer hotels than to try to spread it across multiple assets. And so, that's more of a strategic play and profitability play than it is, be at specific in a cluster of assets.
Chris Woronka - Deutsche Bank Securities, Inc.
Okay. That is helpful. And then as you think about someday going on offense again on acquisitions, whenever that may occur, has your thinking changed at all in terms of would you deemphasize urban a little bit if we're going to see a prolonged period of people doing more business activity out in the suburbs or would you try to go even deeper on resorts? What's your segmentation view on acquisitions when you get back to that?
Leslie D. Hale - RLJ Lodging Trust
Look, what I would say is, is that we all believe that the pandemic is temporary and we're looking through it. We believe in a diversification of our portfolio. We did a lot of heavy lifting on disposing of assets in certain markets that we did last year. And we have greater conviction in what we invest in today, from a rooms-oriented, branded, high-margin assets. And we're seeing the benefits of that today in our profitability. We're seeing that in our ability to get to breakeven. And so, by and large, we have greater conviction in our diversification and the types of assets that we invest in. And so, we're looking for assets that fit that profile as opposed to specific markets is the way I would articulate it.
Chris Woronka - Deutsche Bank Securities, Inc.
Okay. Very helpful. Thanks.
Operator
Our next question is from Neil Malkin with Capital One Securities. Please proceed.
Neil Malkin - Capital One Securities, Inc.
Good morning, everyone.
Sean M. Mahoney - RLJ Lodging Trust
Good Morning.
Leslie D. Hale - RLJ Lodging Trust
Good morning.
Neil Malkin - Capital One Securities, Inc.
Hi. A question on – I guess, for Tom. Just given COVID and, obviously, that's a once-in-a-generation or lifetime type of event, but just wondering if that's kind of made you maybe rethink the way that you manage revenues with maybe layering in some more lower cost base in terms of either contract, government, etcetera, that has more staying power and could diversify the revenue stream, if in fact we have another event that impacts BT and (00:41:28) group, which can change rather quickly.
Leslie D. Hale - RLJ Lodging Trust
Yeah. I would say that we believe that lodging demand will recover, and that in order to have a real recovery, you need all three segments to recover. And so, again, as I said before, we're looking through the recovery in terms of how we think about our portfolio. But in this environment today, there isn't the ability to revenue manage. You're simply using a heads in bed strategy. The objective here is to reduce our burn rate. And so we've opened up all channels. The dominant demand today is in leisure, which is generally a lower rated demand segment.
And so, we're not making decisions about how to manage our portfolio based on the construct of what we see today because we do believe that it is temporary. We are sober about the fact that the shape of the recovery will be a slow ramp initially. But we don't believe that this is a sustained environment for our industry long term.
Thomas J. Bardenett - RLJ Lodging Trust
The other thing I would add, too, Neil, is if you think about our footprint and the construct of our portfolio, we are smaller in nature. Many of our hotels on the select service side are 120 to 150 keys. And on the compact full-service, somewhere between 200 and 300. So the contract piece of business, you don't want to have too much inventory in there at that inventory because it's important to be able to build a little bit of base to be able to have that compression when group and corporate come back. So we want to be thoughtful about what type of business we take in that environment and the right rate because it obviously gives you a seven-day week demand.
For instance, in our portfolio for the third quarter, we ended up around 6% of total mix on contract. It was a little up from Q2. So we're looking for 5, 10 rooms in contract but we're not looking for a big block of contract rooms, just to give you an example.
The other thing that I would say is when we think about the mix and what Leslie referred to is, we're seeing that between discount and retail, those are the two segments that are growing right now. So from a pricing standpoint, we're very thoughtful having parity within the Expedia and the Booking.com windows because we know that business is booking; but at the same time, because we're one of five in a set. We want to make sure we're the price leader and have rate integrity. So we lead the charge out of the pandemic versus (00:43:50).
Sean M. Mahoney - RLJ Lodging Trust
And then the last thing to add on to that, Neil, is that we did a lot of heavy lifting with the portfolio last year. So our portfolio locations today are in locations that we believe are going to be strong recovery markets. And so, by layering in that contract business, that would limit our ability to drive rate during the recovery. And we are confident with our locations and our hotel types, as Tom mentioned, that we have a very well-positioned hotel to be able to yield manage coming into recovery. And so that also helps us have confidence as well.
Neil Malkin - Capital One Securities, Inc.
Okay. Thanks. I appreciate all the commentary. The other thing I had is with the work with the brands as the model kind of changes or is rationalized, it seems like the brand standard, the F&B is one of the top of the list of things that will be changed significantly. And this is more related to your full and compact full-service portfolio. I assume that with that F&B and maybe some other lower margin aspects of the hotel, non-room aspects going away, that would create potential for space or underutilized space. I just wonder what you think that looks like going forward, at least in part, how that works with the business either traveler or person who is working from home with Hyatt – the work from Hyatt and Marriott push to have people work there as opposed to the house. And then I wonder if you think that there could be potential shadow demand for the space in those types of hotels you have with office space footprint shrinking and maybe people use hotel meeting space as an alternative to having bigger office space.
Thomas J. Bardenett - RLJ Lodging Trust
Lot to unpack there, Neil. I just wanted to start with the first thing, and that is the space component. If you think about what Sean was talking about, as well as Leslie about the Embassy Suites footprint, one of the things that we really had from a premise in regards to why we were doing the evolutions was exactly what you were referring to, having that public space but be also private, so people could utilize that space depending upon after breakfast or the reception area. So it also gave us the ability to think about utilizing that for receptions and catering. And when group comes back, we know that's going to be a huge benefit.
To your point about using space that's unique in our hotels because of F&B, we have seen the demand where people are reading in their guestrooms more. We talked specifically about family and the value of the suite where you have two components in the guest room where people are utilizing our space differently. So we think that's also been a plus.
In regards to the working with the brands and how we're dealing with all the relationships in regards to how we're providing the deliverables on breakfast and where we're going, that's where we've seen quite a few of the savings right out of the gate that we think can continue into the future. And we're pretty positive about some of those adjustments.
For instance, our comp (00:47:15) food services was down significantly percentage-wise because we didn't have buffets and we didn't have room service. So, as we reinvent ourselves going into the future, we think there's a great opportunity to try to think about hours of operations, the food and beverage deliverables and reinvent the opportunity to be able to have a better cost structure and relationship to still provide the consumer what they're looking for going forward.
And then the last thing that I would add is you hinted to the fact that one of the brands is doing in regards to the cost model. We do think the future is going to be brighter because of the thought process of more variable relationships versus fixed. And we've already seen that with the family of brands as we are with Hyatt, Marriott, and Hilton, specifically talking to them about how that structure works in regards to IT, area sales, revenue management, and sales and marketing. So those are the areas that we're most excited about on the margin side to be able to kind of reinvent ourselves as we get out of the pandemic and move forward, in addition to currently in the environment that we're marketing today.
Sean M. Mahoney - RLJ Lodging Trust
Yeah, Neil. And I think when you think – your point is spot on about the F&B restaurants being having lower margin and probably being less important post-pandemic than pre-pandemic. But I would remind you this is a trend that was going on in the industry for quite some time. And so a lot of our renovations, Tom mentioned Embassy Suites, but elsewhere within the portfolio was to allow that space to be cross-functional. And so it allow us to cross-sell that space and use it as a restaurant, I mean that made sense, but also have that convert to flexible meeting space when that made the most sense. And so having a flexible footprint within the space in our hotels I think gives us the best of both worlds. And so that's something that we've thought about before and is probably, to your point, going to be an increasing emphasis in our hotels going forward.
Neil Malkin - Capital One Securities, Inc.
Thank you.
Operator
Our next question is from Tyler Batory with Janney Capital Markets. Please proceed.
Unknown Speaker
Good morning. This is Jonathan on for Tyler. Thanks for taking our questions. First one for me, you touched on this, but for your extended-stay hotels, can you just provide some additional color on trends, how they've continued into October and how that compares to the total portfolio?
Thomas J. Bardenett - RLJ Lodging Trust
Yeah, sure. So, when we think about our extended-stay hotels, what we've noticed is we typically track extended-stay occupancy, which is five-plus room nights in regards to when people stay with us. What we've seen at our Residence Inns, in our Hyatt House and Homewood Suites that are in that category is people really have enjoyed the opportunity to have that full kitchen, the ability to cook, and our full refrigerator because when they're staying on a longer-term basis, they're utilizing that space. So, just think about the environment that we're in today where restaurants have capacity issues and the current environment of people eating more in the room because of the lack of availability in locations. So, that's become a significant presence in regards to where people are thinking about where to book.
The other thing that I would say is what we've noticed is there has been an increase in the amount of people staying in that 10 to 16 nights. Typically, the (00:50:35) pricing for extended-stay hotels is usually when you stay a week to three weeks. And we've seen a lot of that project business come in that we've talked about earlier. The government business, the training business still have to – (00:50:47) a pharma business. And then as unfortunately, we've all experienced with the wildfires and the storms, we get a significant amount of business whether it's FEMA, Red Cross, or restoration companies that are coming to help people in that current environment. So, we feel good about our footprint of extended-stay, and they're always the most profitable because they run the highest occupancies with the length of stay. And the fact that the housekeeping model is you don't clean those as often when somebody is in there for that period of time. So, hopefully, that helps you answer the question in regards to what we're doing our extended stay hotels.
Leslie D. Hale - RLJ Lodging Trust
And, Jonathan, when you sort of think about it just from a numbers perspective, our suites were up 40% – had 40% occupancy in the third quarter. And, by and large, we expect that trend to carry into October. It did carry into October and will carry to the fourth quarter.
Unknown Speaker
Okay. Good. That's very helpful. And then turning to the booking window. I was wondering if you could provide some additional color on the booking window and what you guys are seeing there.
Leslie D. Hale - RLJ Lodging Trust
Yeah. I mean, look, our booking window continues to be short, kind of zero to three days. We're seeing 70% of our demand booked in that zero to three-day window. And so, that's also what gives us as we sort of look at November and December, as we move into a part of our cycle that is normally – I'm sorry – as part of the season that is normally slower, the lack of visibility gives us the perspective that we expect November to December to be softer than in October. But until we can sort of see the booking window around the holidays, so the Thanksgiving and Christmas, we really won't know. But the booking window is about zero to three days. 70% of our demand comes in that window.
Unknown Speaker
Okay. Great. I appreciate all the detail. That's all for me. Thank you.
Operator
Our next question is from Gregory Miller with Truist Securities. Please proceed.
Gregory J. Miller - Truist Securities
Thank you. Good morning. I want to ask about the corporate rate negotiations. I'm curious how they're progressing for 2021 in terms of volumes and rates. And relatedly, do you expect we may have a delayed timeframe before rate negotiations conclude this year?
Thomas J. Bardenett - RLJ Lodging Trust
Yes and yes. So, the first question is in regards to the negotiation, the brands have done a good job in regards to trying to roll over 2020 rates to 2021. But keep in mind, as we have earlier spoken about offices still being closed or just gradually opening up, there's not going to be a significant amount of travel until their own offices open up. So what rate they have in 2020 going into 2021 is not as much of a significant issue as how much volume and demand is actually going to come from those corporations that have that rate. That's first and foremost.
The second thing that I would say is because of what you do with negotiated rates is you have two choices. You can either give a fixed price of what it was in 2020 to go to 2021 or you can put them on dynamic pricing, which means they float off of your best available rate that day, and companies that don't have as much volume typically like that because they don't have the volume to be able to secure a fixed rate in many markets. What we're finding is there's more companies that want to float off a bar thinking that 2021 bar pricing might be lower than 2020. So we think that that's going to be something to monitor and look at.
And then my last point to you, Greg, is if you're not in the preferred program in 2020, it's going be hard to get into the preferred program for these companies in 2021. And as I stated earlier, many of our hotels because of premium brands, premium locations, we think we've got a good book in regards to who we're dealing with and business that we have and the loyalty that we've shown them over the years will benefit us when we come out from a pre-pandemic and start to get corporate traveling again.
Gregory J. Miller - Truist Securities
That's fantastic color. I really appreciate that. I want to ask a second question unrelatedly, on conversions of hotels to residential use. There are some cities in the US where hotels are being sold to municipalities for residential conversation to affordable and transient housing. I haven't heard this amongst much, if any, on the upper tier select service. But I'm curious if you see this as a possible rising trend in some of your markets or selectively in certain locations.
Leslie D. Hale - RLJ Lodging Trust
It's an interesting question. We have definitely seen resi investors start to inquire about hotels in certain markets. New York would be one of those. I would say that we've received kind of one or two inbound questions from – for alternative use on hotel. And so it's definitely out there. But I can't tell you that it's significant or meaningful. I haven't necessarily seen it from a standpoint of selling to municipalities. But I've seen resi investors sort of start to inquire. And so there may be a trend there but I can't give you a sense of order of magnitude relative to that.
Thomas J. Bardenett - RLJ Lodging Trust
Yeah. And Greg, we're getting the best of both worlds in some of that respect on our university business in both Pittsburgh and Boston where we're able to have occupancy and rates like an alternative use in residential, which flows fantastic to the bottom line. So we've taken advantage of that trend not necessarily on the asset disposition side but on the ability to manage the business through the pandemic in this environment.
Gregory J. Miller - Truist Securities
Thanks, everyone. That's great.
Operator
Our next question is from Anthony Powell with Barclays. Please proceed.
Anthony F. Powell - Barclays Capital, Inc.
Hi. Good morning. Question on the Santa Monica, I guess, conversion to an independent. Did the lack of key money play any role in terms of not one of the brand there and how do you look at key money in your conversion activity going forward?
Leslie D. Hale - RLJ Lodging Trust
No, it's definitely not a lack of key money. We had a lot of interest in this asset. Santa Monica is a very sought-after market and it's one of the few markets that still has high barriers to entry. And so, that was not the issue. It was really looking at what we thought we could drive from a topline perspective and what was needed in order to do that. And we think that this market really supports independent hotels that are well-located. And given the fact that our hotel is literally seven steps from the pier, that we think that this is the type of asset. I think also the size of the hotel and the general footprint of the hotel also influenced our decision as well because we can be more creative in an independent space rather than the brand. So, it was not related to key money.
Anthony F. Powell - Barclays Capital, Inc.
Got it. Thanks. And similar question, RLJ historically has focused on branded properties, do you see (00:58:00) more independent properties over time as you tend to ramp up your offensive activity this year?
Leslie D. Hale - RLJ Lodging Trust
Look, I think that being premium branded is still a core component of our investment thesis. You will see us expand into the lifestyle brands. But we still believe that brands are important. And we think that because of the pandemic, brands will symbolize safety. And so, we believe that brands will be more important coming out of this. We just think that, in particular for Santa Monica, independent is the right way to go for that asset.
Anthony F. Powell - Barclays Capital, Inc.
Great. Thank you.
Operator
We have reached the end of our question-and-answer session. I would like to turn the conference back over to Ms. Hale for closing remarks.
Leslie D. Hale - RLJ Lodging Trust
Thank you, everybody, for joining us for our call. We hope again that you and your families remain safe. We feel that we have made a lot of progress since our last call, and that we are well-positioned to take advantage of growth opportunities as they materialize. Have a good weekend, everybody.
Operator
Thank you. This does conclude today's conference. You may disconnect your lines at this time and thank you for your participation.
Yeah. I think another part of positive levels for us and was also just our investment in the Embassy Suites and particularly, you know, around, you know, various elements of those hotels, and I think that the pandemic has given us more conviction in terms of how appealing those hotels are because of the size of their base and the lobby space. And so, I would say that many of the ROI projects that we had articulated earlier, we have greater conviction in today as a result of what we're experiencing.
And then just last one for me. On the joint venture, you know, opportunities that you're exploring. How far along are you in sort of negotiating or seeking out a partner? And can you give us a sense of maybe the scale of the venture?
Austin, it's really early. And so you know, I'm hesitant to sort of articulate the size and scale, but what I would say is is that, you know, we have the experience of having a private equity background. We bring a lot to the table from the standpoint of industry knowledge, access to deal flow, and a track record around buying and selling assets. And so, we feel pretty good about being able to attract the right capital. But I would also just like to articulate to you that, you know, we have the ability to be nimble that to the extent that market conditions evolve, and we can pivot to our own balance sheet as well. And so, you know, we really look at this as an opportunity to be active in a point in time where we might not otherwise be active. But if things change, we can always pivot to our balance sheet because we have the cash to be active on our balance sheet.
Understood. Thanks for the time.
Our next question is from Chris Woronka with Deutsche Bank. Please proceed.
Hey, good morning, everyone. I wanted to ask you about the closed hotels, I think there's seven, you said, still remain closed. It sounds like, if my math is correct, the cash burn on those was about, maybe, $14 million in the quarter. What's – do those – what's the indifference point on opening those? And is it significantly higher than where you're running on the other hotels?
Yeah. I mean, the hotels that we have, we have two in New York that are not open, two in San Francisco, one in the San Francisco that is open is under renovation and once the renovation is complete, we would open that. But those efforts, generally, large boxes, have high cost structures. And so remember, our objective here is simply to reduce our burn rate. And so, we have to be able to open those hotels in a way that brings down that burn rate.
And so, if you take New York for example, where you have a high cost structure, which is almost 2x our portfolio, at these low occupancy levels, we can't get enough rate to overcome that cost structure. And so, we really need to see a higher occupancy or the ability to garner a higher rate in order to justify opening those assets and that is – that's a matter of time.
If you look at New York, it feels, kind of, 45% of the hotels are still closed. So, this is – it's a market issue, not an asset issue for us. The other assets that are close are clustered assets in Houston and Chicago, where we have multiple assets on a single pad. Based on low occupancy we are – we are in, it's more strategic to push all that demand to fewer hotels than to try to spread it across multiple assets. And so, that's more of a strategic play and profitability play than it is, be at specific in a cluster of assets.
Okay. That is helpful. And then as you think about someday going on offense again on acquisitions, whenever that may occur, has your thinking changed at all in terms of would you deemphasize urban a little bit if we're going to see a prolonged period of people doing more business activity out in the suburbs or would you try to go even deeper on resorts? What's your segmentation view on acquisitions when you get back to that?
Look, what I would say is, is that we all believe that the pandemic is temporary and we're looking through it. We believe in a diversification of our portfolio. We did a lot of heavy lifting on disposing of assets in certain markets that we did last year. And we have greater conviction in what we invest in today, from a rooms-oriented, branded, high-margin assets. And we're seeing the benefits of that today in our profitability. We're seeing that in our ability to get to breakeven. And so, by and large, we have greater conviction in our diversification and the types of assets that we invest in. And so, we're looking for assets that fit that profile as opposed to specific markets is the way I would articulate it.
Okay. Very helpful. Thanks.
Our next question is from Neil Malkin with Capital One Securities. Please proceed.
Good morning, everyone.
Good Morning.
Good morning.
Hi. A question on – I guess, for Tom. Just given COVID and, obviously, that's a once-in-a-generation or lifetime type of event, but just wondering if that's kind of made you maybe rethink the way that you manage revenues with maybe layering in some more lower cost base in terms of either contract, government, etcetera, that has more staying power and could diversify the revenue stream, if in fact we have another event that impacts BT and (00:41:28) group, which can change rather quickly.
Yeah. I would say that we believe that lodging demand will recover, and that in order to have a real recovery, you need all three segments to recover. And so, again, as I said before, we're looking through the recovery in terms of how we think about our portfolio. But in this environment today, there isn't the ability to revenue manage. You're simply using a heads in bed strategy. The objective here is to reduce our burn rate. And so we've opened up all channels. The dominant demand today is in leisure, which is generally a lower rated demand segment.
And so, we're not making decisions about how to manage our portfolio based on the construct of what we see today because we do believe that it is temporary. We are sober about the fact that the shape of the recovery will be a slow ramp initially. But we don't believe that this is a sustained environment for our industry long term.
The other thing I would add, too, Neil, is if you think about our footprint and the construct of our portfolio, we are smaller in nature. Many of our hotels on the select service side are 120 to 150 keys. And on the compact full-service, somewhere between 200 and 300. So the contract piece of business, you don't want to have too much inventory in there at that inventory because it's important to be able to build a little bit of base to be able to have that compression when group and corporate come back. So we want to be thoughtful about what type of business we take in that environment and the right rate because it obviously gives you a seven-day week demand.
For instance, in our portfolio for the third quarter, we ended up around 6% of total mix on contract. It was a little up from Q2. So we're looking for 5, 10 rooms in contract but we're not looking for a big block of contract rooms, just to give you an example.
The other thing that I would say is when we think about the mix and what Leslie referred to is, we're seeing that between discount and retail, those are the two segments that are growing right now. So from a pricing standpoint, we're very thoughtful having parity within the Expedia and the Booking.com windows because we know that business is booking; but at the same time, because we're one of five in a set. We want to make sure we're the price leader and have rate integrity. So we lead the charge out of the pandemic versus (00:43:50).
And then the last thing to add on to that, Neil, is that we did a lot of heavy lifting with the portfolio last year. So our portfolio locations today are in locations that we believe are going to be strong recovery markets. And so, by layering in that contract business, that would limit our ability to drive rate during the recovery. And we are confident with our locations and our hotel types, as Tom mentioned, that we have a very well-positioned hotel to be able to yield manage coming into recovery. And so that also helps us have confidence as well.
Okay. Thanks. I appreciate all the commentary. The other thing I had is with the work with the brands as the model kind of changes or is rationalized, it seems like the brand standard, the F&B is one of the top of the list of things that will be changed significantly. And this is more related to your full and compact full-service portfolio. I assume that with that F&B and maybe some other lower margin aspects of the hotel, non-room aspects going away, that would create potential for space or underutilized space. I just wonder what you think that looks like going forward, at least in part, how that works with the business either traveler or person who is working from home with Hyatt – the work from Hyatt and Marriott push to have people work there as opposed to the house. And then I wonder if you think that there could be potential shadow demand for the space in those types of hotels you have with office space footprint shrinking and maybe people use hotel meeting space as an alternative to having bigger office space.
Lot to unpack there, Neil. I just wanted to start with the first thing, and that is the space component. If you think about what Sean was talking about, as well as Leslie about the Embassy Suites footprint, one of the things that we really had from a premise in regards to why we were doing the evolutions was exactly what you were referring to, having that public space but be also private, so people could utilize that space depending upon after breakfast or the reception area. So it also gave us the ability to think about utilizing that for receptions and catering. And when group comes back, we know that's going to be a huge benefit.
To your point about using space that's unique in our hotels because of F&B, we have seen the demand where people are reading in their guestrooms more. We talked specifically about family and the value of the suite where you have two components in the guest room where people are utilizing our space differently. So we think that's also been a plus.
In regards to the working with the brands and how we're dealing with all the relationships in regards to how we're providing the deliverables on breakfast and where we're going, that's where we've seen quite a few of the savings right out of the gate that we think can continue into the future. And we're pretty positive about some of those adjustments.
For instance, our comp (00:47:15) food services was down significantly percentage-wise because we didn't have buffets and we didn't have room service. So, as we reinvent ourselves going into the future, we think there's a great opportunity to try to think about hours of operations, the food and beverage deliverables and reinvent the opportunity to be able to have a better cost structure and relationship to still provide the consumer what they're looking for going forward.
And then the last thing that I would add is you hinted to the fact that one of the brands is doing in regards to the cost model. We do think the future is going to be brighter because of the thought process of more variable relationships versus fixed. And we've already seen that with the family of brands as we are with Hyatt, Marriott, and Hilton, specifically talking to them about how that structure works in regards to IT, area sales, revenue management, and sales and marketing. So those are the areas that we're most excited about on the margin side to be able to kind of reinvent ourselves as we get out of the pandemic and move forward, in addition to currently in the environment that we're marketing today.
Yeah, Neil. And I think when you think – your point is spot on about the F&B restaurants being having lower margin and probably being less important post-pandemic than pre-pandemic. But I would remind you this is a trend that was going on in the industry for quite some time. And so a lot of our renovations, Tom mentioned Embassy Suites, but elsewhere within the portfolio was to allow that space to be cross-functional. And so it allow us to cross-sell that space and use it as a restaurant, I mean that made sense, but also have that convert to flexible meeting space when that made the most sense. And so having a flexible footprint within the space in our hotels I think gives us the best of both worlds. And so that's something that we've thought about before and is probably, to your point, going to be an increasing emphasis in our hotels going forward.
Thank you.
Our next question is from Tyler Batory with Janney Capital Markets. Please proceed.
Good morning. This is Jonathan on for Tyler. Thanks for taking our questions. First one for me, you touched on this, but for your extended-stay hotels, can you just provide some additional color on trends, how they've continued into October and how that compares to the total portfolio?
Yeah, sure. So, when we think about our extended-stay hotels, what we've noticed is we typically track extended-stay occupancy, which is five-plus room nights in regards to when people stay with us. What we've seen at our Residence Inns, in our Hyatt House and Homewood Suites that are in that category is people really have enjoyed the opportunity to have that full kitchen, the ability to cook, and our full refrigerator because when they're staying on a longer-term basis, they're utilizing that space. So, just think about the environment that we're in today where restaurants have capacity issues and the current environment of people eating more in the room because of the lack of availability in locations. So, that's become a significant presence in regards to where people are thinking about where to book.
The other thing that I would say is what we've noticed is there has been an increase in the amount of people staying in that 10 to 16 nights. Typically, the (00:50:35) pricing for extended-stay hotels is usually when you stay a week to three weeks. And we've seen a lot of that project business come in that we've talked about earlier. The government business, the training business still have to – (00:50:47) a pharma business. And then as unfortunately, we've all experienced with the wildfires and the storms, we get a significant amount of business whether it's FEMA, Red Cross, or restoration companies that are coming to help people in that current environment. So, we feel good about our footprint of extended-stay, and they're always the most profitable because they run the highest occupancies with the length of stay. And the fact that the housekeeping model is you don't clean those as often when somebody is in there for that period of time. So, hopefully, that helps you answer the question in regards to what we're doing our extended stay hotels.
And, Jonathan, when you sort of think about it just from a numbers perspective, our suites were up 40% – had 40% occupancy in the third quarter. And, by and large, we expect that trend to carry into October. It did carry into October and will carry to the fourth quarter.
Okay. Good. That's very helpful. And then turning to the booking window. I was wondering if you could provide some additional color on the booking window and what you guys are seeing there.
Yeah. I mean, look, our booking window continues to be short, kind of zero to three days. We're seeing 70% of our demand booked in that zero to three-day window. And so, that's also what gives us as we sort of look at November and December, as we move into a part of our cycle that is normally – I'm sorry – as part of the season that is normally slower, the lack of visibility gives us the perspective that we expect November to December to be softer than in October. But until we can sort of see the booking window around the holidays, so the Thanksgiving and Christmas, we really won't know. But the booking window is about zero to three days. 70% of our demand comes in that window.
Okay. Great. I appreciate all the detail. That's all for me. Thank you.
Our next question is from Gregory Miller with Truist Securities. Please proceed.
Thank you. Good morning. I want to ask about the corporate rate negotiations. I'm curious how they're progressing for 2021 in terms of volumes and rates. And relatedly, do you expect we may have a delayed timeframe before rate negotiations conclude this year?
Yes and yes. So, the first question is in regards to the negotiation, the brands have done a good job in regards to trying to roll over 2020 rates to 2021. But keep in mind, as we have earlier spoken about offices still being closed or just gradually opening up, there's not going to be a significant amount of travel until their own offices open up. So what rate they have in 2020 going into 2021 is not as much of a significant issue as how much volume and demand is actually going to come from those corporations that have that rate. That's first and foremost.
The second thing that I would say is because of what you do with negotiated rates is you have two choices. You can either give a fixed price of what it was in 2020 to go to 2021 or you can put them on dynamic pricing, which means they float off of your best available rate that day, and companies that don't have as much volume typically like that because they don't have the volume to be able to secure a fixed rate in many markets. What we're finding is there's more companies that want to float off a bar thinking that 2021 bar pricing might be lower than 2020. So we think that that's going to be something to monitor and look at.
And then my last point to you, Greg, is if you're not in the preferred program in 2020, it's going be hard to get into the preferred program for these companies in 2021. And as I stated earlier, many of our hotels because of premium brands, premium locations, we think we've got a good book in regards to who we're dealing with and business that we have and the loyalty that we've shown them over the years will benefit us when we come out from a pre-pandemic and start to get corporate traveling again.
That's fantastic color. I really appreciate that. I want to ask a second question unrelatedly, on conversions of hotels to residential use. There are some cities in the US where hotels are being sold to municipalities for residential conversation to affordable and transient housing. I haven't heard this amongst much, if any, on the upper tier select service. But I'm curious if you see this as a possible rising trend in some of your markets or selectively in certain locations.
It's an interesting question. We have definitely seen resi investors start to inquire about hotels in certain markets. New York would be one of those. I would say that we've received kind of one or two inbound questions from – for alternative use on hotel. And so it's definitely out there. But I can't tell you that it's significant or meaningful. I haven't necessarily seen it from a standpoint of selling to municipalities. But I've seen resi investors sort of start to inquire. And so there may be a trend there but I can't give you a sense of order of magnitude relative to that.
Yeah. And Greg, we're getting the best of both worlds in some of that respect on our university business in both Pittsburgh and Boston where we're able to have occupancy and rates like an alternative use in residential, which flows fantastic to the bottom line. So we've taken advantage of that trend not necessarily on the asset disposition side but on the ability to manage the business through the pandemic in this environment.
Thanks, everyone. That's great.
Our next question is from Anthony Powell with Barclays. Please proceed.
Hi. Good morning. Question on the Santa Monica, I guess, conversion to an independent. Did the lack of key money play any role in terms of not one of the brand there and how do you look at key money in your conversion activity going forward?
No, it's definitely not a lack of key money. We had a lot of interest in this asset. Santa Monica is a very sought-after market and it's one of the few markets that still has high barriers to entry. And so, that was not the issue. It was really looking at what we thought we could drive from a topline perspective and what was needed in order to do that. And we think that this market really supports independent hotels that are well-located. And given the fact that our hotel is literally seven steps from the pier, that we think that this is the type of asset. I think also the size of the hotel and the general footprint of the hotel also influenced our decision as well because we can be more creative in an independent space rather than the brand. So, it was not related to key money.
Got it. Thanks. And similar question, RLJ historically has focused on branded properties, do you see (00:58:00) more independent properties over time as you tend to ramp up your offensive activity this year?
Look, I think that being premium branded is still a core component of our investment thesis. You will see us expand into the lifestyle brands. But we still believe that brands are important. And we think that because of the pandemic, brands will symbolize safety. And so, we believe that brands will be more important coming out of this. We just think that, in particular for Santa Monica, independent is the right way to go for that asset.
Great. Thank you.
We have reached the end of our question-and-answer session. I would like to turn the conference back over to Ms. Hale for closing remarks.
Thank you, everybody, for joining us for our call. We hope again that you and your families remain safe. We feel that we have made a lot of progress since our last call, and that we are well-positioned to take advantage of growth opportunities as they materialize. Have a good weekend, everybody.
Thank you. This does conclude today's conference. You may disconnect your lines at this time and thank you for your participation.