Sotherly Hotels Inc.

Hello, and welcome to the Southerly Hotels Third Quarter 2021 Earnings Call. My name is Robin, and I'll be coordinating your call today. If you would like to ask a question during the presentation, you may do so by pressing Start, followed by 1 on your telephone keypad. I will now hand you over to your host, Mac Sims, VP of Operations at Southerly Hotels. Mac, 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 forelooking statements. Although we believe the expectations reflected in any forelooking 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 statement. 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. which reflect another strong step forward in the recovery of our industry. Looking at third quarter results for the composite portfolio, REVPAR was $90.16, driven by an occupancy of 56.3% and an ADR of $160.13. Looking at these figures versus the third quarter of 2019, REVPAR was down only 9.9%, with occupancy down 18.2%, but ADR increasing 10%. Year-to-date, REVPAR for the composite portfolio is $83.78 with occupancy of 52.4 percent and ADR of $160. Looking at these figures versus the comparable period of 2019, REVPAR was down 28.1 percent with occupancy down 26.9 percent and ADR down only 1.7 percent. These operating metrics were ahead of most of our REIT peers that have reported thus far for the quarter. We were pleased overall with the third quarter results and believe the fact that our portfolio's RevPAR results finished within 10% of 2019's third quarter marks an important step in the company's recovery. The third quarter started strong with continued pent-up demand from the leisure segment as July's RevPAR came within approximately 2% of 2019 levels. The strength of demand continued through mid-August when we started to experience some impact from the Delta variant as group meeting planners began showing hesitancy and major corporations pushed back to return to the workplace dates and extended travel restrictions. We also saw the standard decline in leisure demand caused by the return to school, something that did not occur in 2020. Despite this headwind, August's REF PAR for our portfolio was only off 12% from August of 2019. September got off to a good start as the Labor Day holiday weekend performed very well for the portfolio from a leisure demand perspective, nearly matching 2019 levels. However, the weakness in the business travel segment continued through mid-September and did not fully replace the seasonal trend away from leisure travel. Regardless, group and business travel demand began to ramp up steadily as COVID cases began to decline in the latter half of September and into October. In total, September's REVPAR finished down approximately 16% to September of 2019. Despite the impact from the Delta variant, our portfolio was able to improve incrementally from the second quarter and achieve REVPAR within the range we provided for the third quarter during our last earnings call in August. Our portfolio's best performing hotels during the quarter continue to be fueled by strong leisure travel during the summer months as well as the Labor Day holiday weekend. Looking at some highlights across the portfolio, The DeSoto Savannah continued its stellar performance during the quarter, easily outpacing 2019 metrics with a 24.3% gain in rev par over 2019, fueled by a rate growth of 23.1%. The hotel also continued to outperform its comp set, gaining over 2,000 basis points in rev par share during the quarter. The Doubletree Resort Hollywood Beach saw excellent results during the quarter. with REVPAR surpassing 2019 levels by 12.6%, driven by substantial rate growth of over 34%. Hotel Alba in Tampa continues to be a portfolio standout, as it produced REVPAR more than 53% greater than the third quarter of 2019, with ADR growing over 14% and occupancy up more than 34%. This hotel achieved a REVPAR index of 131.4% in the quarter, firmly holding its position as a leader among its competitive sets. While the Delta variant had a moderate impact on the group and business travel segments, we are seeing this business return this fall as national and regional companies steadily return to the workplace and continue to lessen travel restrictions. Examining recent booking trends demonstrates a steady acceleration in group and business travel at our hotels. In terms of group business, the third quarter produced a 24% improvement over the second quarter. Meanwhile, business travel improved more than 14% over the second quarter of this year. While still plenty of room to grow compared to 2019, This trajectory of group and business demand recovery is a promising indicator for our company. During the quarter, our managers continued their excellent expense controls, leading to strong flow-through and profit margins for the portfolio. Despite the pressure caused by rising costs of goods and labor, our management teams achieved strong margins during the quarter, demonstrated by hotel EBITDA margins more than 300 basis points above the third quarter of 2019. Many cost savings initiatives, such as regional positions, cross-training, just-in-time deliveries, and simplified F&B offerings are expected to become permanent SOPs for our properties moving forward. Meanwhile, hiring is slowly ramping up in proportion to the return in travel demand as staffing shortages have improved significantly in the past six weeks. As children went back to school, vaccination rates improved and enhanced unemployment benefits expired. Looking at corporate activity, In June, the company entered into a hotel person sale agreement to sell the Sheraton Louisville Riverside. During the quarter, the company terminated this agreement due to the buyer's inability to perform. As a result of the termination, the buyer forfeited the $200,000 deposit associated with the agreement. We will continue to monitor opportunities for the disposition of this property. In addition, during the quarter, the company elected to withdraw our S-11 registration statement with the SEC, which contemplated an unsecured note offering. We determined that market dynamics did not align with our desired pricing and structure. While this is not the outcome we are seeking, similar alternatives are being explored as the industry continues its recovery. Dave will comment more on this transaction and how it fits within our overall capital structure later in the call. I'll now turn the call over to Tony. Thank you, Scott.