Sotherly Hotels Inc.

Good day and welcome to the Southerly Hotel's second quarter 2021 earnings conference call and webcast. All participants will be in a 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 a 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. 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 Reg G requirements. Any statements made during this conference call, which are not historical, may constitute forward-looking 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 to review our portfolio's key operating metrics for the quarter, which we are pleased to report exceeded our expectations, reflecting the accelerating momentum in travel demand and confirming our position that a sustained recovery is underway for our industry. Looking at the second quarter results for the composite portfolio, REVPAR was $94.93, driven by an occupancy of 59% and an ADR of $161. Looking at these figures versus the second quarter of 2019, REVPAR was down 25.9%, with occupancy down 22.7%, and ADR down 4.1%. Year-to-date, REVPAR for the composite portfolio was $80.54, with an occupancy of 50.4%, and an ADR of $159.93. Looking at these figures versus the comparable period in 2019, REVPAR was down 35.6%, with occupancy down 31.1%, and ADR down 6.4%. These operating metrics were ahead of most of our REAP peers that have reported thus far for the quarter. The results were also better than our market competitors, as nearly all of our hotels gained share from their competitive sets in the quarter. As a group, the portfolio gained 3,150 basis points in share in the quarter. We were also pleased to see the incremental pace of demand recovery throughout the quarter. Examining composite portfolio REVPAR results on a monthly basis benchmark against 2019 highlights the quarter's continuous improvement. April rev par of approximately $93 was 68% of April 2019 rev par. May rev par of $95 was 73% of May 2019. And then June rev par of $97 was 83% of June 2019. Dave will speak to our forecast for the third quarter a little later in the call, but we are seeing this trend continue. The second quarter's performance was characterized by strong leisure travel, fueled by pent-up demand for warm weather and coastal locations, with leisure performance eclipsing 2019 levels in some markets. Looking at some highlights across the portfolio, the Doubletree Resort in Hollywood Beach, Florida, saw RevPAR surge past 2019 levels by nearly 11% in the quarter, driven by substantial rate growth of nearly 14%. Hotel Alba in Tampa produced RevPAR over 15% greater than 2019, with ADR growing over 5% and occupancy up nearly 10%. This hotel is nearing stabilization following its repositioning and is now performing at over 125% fair share against its competitive set in the market. The DeSoto Savannah's Q2 RevPar was only off by 5% compared to 2019, but grew ADR by 1.3%. This hotel gained nearly 10,000 basis points in RevPar share from its competitors in the quarter. When compared to its competitive set, this hotel is producing some of the best results we've seen since it has converted to an independent lifestyle hotel in 2017, a commendable job for our hotel staff and our new management partner. During the quarter, municipalities across our markets reopened their local economies by lifting restrictions and reopening our demand generators. While this had an immediate impact on the leisure travel segment, it is also directly correlated with the recent improvement in the group and business travel segments. which we believe will provide a considerable base of business in the fall once major corporations return to the workplace and continue to lift corporate travel restrictions. Our sales teams are producing impressive bookings for the second half of the year, especially at our core group locations such as Wilmington, Jacksonville, Savannah, and Atlanta. Examining booking trends for the year, we have witnessed a steady acceleration in group business. The first quarter only produced approximately 15% of the stabilized group revenue when compared to 2019 results. In the second quarter, this more than doubled to 32.5% of Q2 2019 bookings. We are forecasting this to nearly double again in the third quarter to nearly 60% of Q3 2019 group bookings. While still plenty of room to grow compared to 2019, this trajectory of group demand recovery is a promising indicator of how quickly our industry can return to a state of normalcy. Looking forward, although the recent rise of the Delta variant creates additional uncertainty in forecasting travel demand, We have not experienced any significant cancellations or changes to booking trends as a result of these concerns. We continue to monitor the impact of the Delta variant and will adjust our operational strategies accordingly. During the quarter, not only did top-line revenue production surpass our expectations, but so did bottom-line profitability, with hotel EBITDA margins increasing 1,000 basis points over the first quarter of the year. Our managers have continued to adhere to strict expense controls and just-in-time delivery of services and amenities that coincide with the return of demand to their individual markets. This results in strong flow-through and profit margins. Staffing is one area we wouldn't mind adding a little expense. However, the labor markets remains a challenge we face as an industry and as a nation. We have seen some incremental improvement as our southern state governors have worked to encourage their population back to work, and we expect this to continue to improve in a meaningful way through September as government benefits burn off and schools resume normal operations. Turning to corporate activity, during the quarter, we addressed the upcoming loan maturity for our DoubleTree asset in Laurel, Maryland by extending the maturity date with our existing lender through May 2022. By extending this loan, we believe this will allow the industry the chance to enter a sustained recovery and will facilitate better opportunities for a more permanent loan restructuring solution next year. Also during the quarter, we executed on an agreement with one of the largest holders of the company's preferred stock to exchange 220,000 shares of preferred stock for approximately 1.5 million common shares. The execution of this exchange fits with our long-term strategy to shore up our balance sheet while also preserving liquidity. This transaction eliminated approximately $660,000 of deferred dividend payments, as well as $440,000 in annual preferred dividend payments going forward. In June, the company entered into a hotel person sale agreement to sell the Sheraton Louisville Riverside Hotel for a price of $11.5 million, including the assumption by the buyer of the mortgage loan on the hotel, which currently has an outstanding balance of approximately $11 million. The agreement includes a $200,000 deposit, which is now non-refundable. As a result of the market's underperformance and the steady decline in brand contribution, the company's smallest asset no longer fit our long-term strategy. If successful, we believe the disposition of this asset will be nearly accretive to our cash flow. Lastly, the company recently filed an S11 registration statement with the SEC, which contemplates an unsecured note offering. Net proceeds from any offering would be used to repay, in full or in part, the loan that was originated in December of 2020 to replenish the cash burned during the depths of the pandemic. We continue to evaluate all capital markets options available to us with the goal to enhance our liquidity position bolster our balance sheet, and position the company for future success. I will now turn the call over to Tony.