Sotherly Hotels Inc.

Good day and welcome to the Southerly Hotels Inc. Third Quarter 2020 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Max Sims, Vice President. Please go ahead.

Thank you, and good morning, everyone. If you did not receive a copy of the earnings release, you may access it on our website at southerlyhotels.com. In the release, the company has reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with the Reg G requirements. Any statements made during this conference call, which are not historical, may constitute forelooking statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that these expectations will be attained. Factors and risks that can cause actual results to differ materially from those expressed or implied by forward-looking statements are detailed in today's press release and from time to time in the company's filings with the SEC. The company does not undertake a duty to update or revise any forward-looking statements. With that, I'll turn the call over to Scott. Thanks, Mac.

Good morning, everyone. I'll start off today's call with a review of our portfolio's key operating metrics for the quarter. Looking at results for the composite portfolio, which remained fully open during the quarter, REVPAR decreased 63.3% over prior year, reflecting a 59.8% decrease in occupancy and an 8.9% decrease in ADR. Year to date, portfolio REVPAR decreased 60.4% over prior year, with a 57.6% decrease in occupancy and a 6.5% decrease in ADR. These metrics were generally in line with our comp sets and the upper upscale US lodging segment and appear to be ahead of the majority of our REIT peers that have reported thus far. Similar to the second quarter, the industry's third quarter performance was firmly influenced by COVID-19's impact on travel demand as a gradual improvement in traveler sentiment reflected the progress in performance as an industry. The relative improvement in performance was not without setbacks, however, as states and local jurisdictions struggle to strike a balance between curbing the spread of the virus and reopening their economies. During the quarter, several northeastern states implemented new travel restrictions, requiring travelers from states with high infection rates to quarantine after arriving. Most of these have now been lifted. Several states rolled back reopening plans with restrictions on businesses and social gatherings, while other states, such as Florida, are now operating without any significant restriction at all. Lastly, during the quarter, civil unrest in several of our markets led to further complications for hotel operations in those locations. Thankfully, this activity has now also subsided. Needless to say, a bumpy start to the recovery, but a start to the recovery nonetheless, as the broader travel industry experienced incremental improvement in performance throughout the quarter, as evidenced by the steady upward trajectory of airline passengers and hotel demand. Examining our composite portfolio's performance month by month, we saw a solid incremental improvement as the quarter went on and more consumers felt comfortable traveling again. Looking at RevPAR results on an absolute basis for the portfolio highlights this gradual improvement, as RevPAR was $36.27 in July, $40.28 in August, and then $44.28 in September. These figures represent a deceleration in year-over-year declines, which were 68.4% in July, 58.9% in August, and 57.5% in September. While certainly not attractive figures on their own, they do represent consistent and meaningful steps in the right direction month after month. Similar to the first part of the summer, this relative improvement performance for our portfolio was led by our leisure drive-to destinations, such as Wilmington, Savannah, and our Florida properties. In contrast, our properties located in CBD locations of more urban markets, such as Washington, D.C., Raleigh, Atlanta, and Houston, have continued to be impacted by the limited improvement in travel to those more densely populated locations. It's also noteworthy that our management teams have done a commendable job maintaining rate at our properties, which outperform their competitive sets year-over-year results. By maintaining rate integrity, our properties were able to control costs and improve flow-through during the quarter. Although the third quarter experienced a considerable improvement in performance over the second quarter, substantial challenges lie ahead for our portfolio and the lodging industry as a whole. Intense pricing competition is underway in certain markets, further threatening the profitability of our operations. The upper upscale segment, which encompasses the majority of our properties, faces added headwinds due to its reliance on group and catering revenues, which have been severely limited due to social distancing measures, group gathering size limitations, and corporate travel restrictions. Furthermore, although the slight uptick in business travel is encouraging, This segment remains severely constrained as companies extend corporate travel restrictions into early 2021. Lastly, and perhaps more profound, we expect the government's response to the trajectory of the virus to be a primary driver in shaping demand in the industry. Despite these challenges, we believe our corporate team and management partners have executed soundly on our strategic plan and will adapt to the evolving lodging environment moving forward. I would like to end by noting that this past month we began a process of transitioning the management of the Hyatt-centric Arlington to Southerly's dedicated manager, Our Town Hospitality. With this change, which is planned to be completed later this month, all of Southerly's properties will be managed by Our Town. We believe the change will result in improved workflow and efficiency at both the property and corporate level, which we believe will, in turn, lead to improved results in the future. I will now turn the call over to Tony.