Sotherly Hotels Inc.

Hello, everyone, and welcome to the South Valley Hightail's second quarter 2022 earnings call and webcast. My name is Victoria, and I will be coordinating your call today. If you would like to ask a question during the presentation, please press star 1 on your telephone keypad. When preparing to ask your question, please ensure that your line is unmuted locally. I'll now pass over to your host, Max Simms, Vice President of Operations to Begin. 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 through a review of our portfolio's key operating metrics for the quarter. Looking at the second quarter results for the same store composite portfolio, RevPAR was $128.73, driven by an occupancy of 69.3% and an ADR of $185.76. Second quarter RevPAR performance represents an increase of 35.7% over the same period in 2021. Looking at these figures versus the second quarter of 2019, RevPAR was down only 1.3%. with occupancy down 8.8 percent, but ADR increasing 8.3 percent. Year-to-date, REVPAR for the same store composite portfolio was $114.31, with occupancy of 62 percent and an ADR of $184.49. Year-to-date REVPAR performance represents an increase of 42.5 percent over the same period in 2021. Looking at these figures versus a comparable period in 2019, REVPAR was down 11.2 percent, with occupancy down 15.5 percent and ADR increasing 5.2 percent. Overall, we were very pleased with our portfolio's second quarter results, which were fueled by increased demand and strong rates across all business segments. Examining same-store composite portfolio REVPAR results on a monthly basis benchmark against 2019 highlights the portfolio's strong performance, which hovered near pre-pandemic levels throughout the quarter. April REVPAR was nearly 102 percent of April 2019 REVPAR. May's REVPAR was nearly 98 percent of May 2019, while June's REVPAR was more than 98 percent of June 2019's REVPAR. Our portfolio's second quarter results continue to build on the strong recovery that began in March of this year. A faster than expected improvement in group and business travel was combined with sustained strength in leased demand. resulting in our portfolio outperforming our prior forecasts. The improvement in performance for our highly impacted urban markets provided the most upside during the quarter, where midweek occupancies, fueled by both transient and group-based corporate travel, boasted their highest levels since the start of the pandemic. In addition, weekend demand in these urban markets was boosted by the return of traditional leisure drivers, such as citywide events, festivals, and shows following a two-year interruption. While our urban market hotels exhibited improved results during the quarter, we believe there is still significant upside potential for these markets as forward bookings continue to trend positively. Meanwhile, maintaining recent trends, our portfolio's ideally located coastal hotels experienced extraordinary leisure demand during the quarter. A continued surge in leisure travel was coupled with a steady return of group demand to produce outstanding results during the period in key markets such as Savannah, Tampa, Wilmington, and Hollywood, Florida. Pricing power continued to drive profitability across the portfolio, and especially for these leisure markets, many of which attracted unprecedented rates during the second quarter. Looking at some highlights across the portfolio, the DeSoto Savannah continued to be a standout among our portfolio during the quarter, as stellar leisure travel was layered with the return of group business at the hotel. The property easily outpaced 2019 metrics with a 22.5 percent gain in rev far fueled by significant rate growth of 20.4 percent and occupancy growth of 1.9 percent over 2019. The Doubletree Resort in Hollywood saw excellent results during the second quarter, as its performance far exceeded the same period in 2019, with an increase in rev par of 36.7 percent, fueled by a 33.5 percent increase in ADR and 2.3 percent gain in occupancy. The property also improved its standing among a competitive set gaining 330 basis points in REVPAR share from its competitors during the quarter. The Hyatt Century in Arlington exhibited the portfolio's most profound quarter-over-quarter improvement, with REVPAR gaining more than 128% over the first quarter of the year. While REVPAR was still off 20% from the 2019 levels, the property continues to trend in the right direction while outperforming its competitive set. During the quarter, the hotel achieved a REVPAR index of nearly 117%, and gained 1,000 basis points in RevFar share, further solidifying its position as the market leader. Examining our portfolio's recent booking trends highlights the steady acceleration in group and business travel at our hotels. During the second quarter, the group segment recorded 132% improvement over the first quarter of 2022, while business travel increased more than 66% over the first quarter. Comparing to 2019, during the second quarter, the group segment was much improved, producing 86% of the group business produced in the second quarter of 2019, while business travel produced approximately 66% of the business travel as of the second quarter of 2019. We anticipate this trajectory of group and business demand recovery to continue this coming fall, which is shaping up nicely with strong booking trends. Our forecast for these segments, which continue to close the gap to 2019, are a promising indicator for their company. Our managers were able to control variable costs and achieve excellent flow through, despite rising costs of goods and labor faced during the quarter. To further offset the increases in operating costs, our revenue managers focused heavily on driving rate at our properties. As a result of this strategic approach, the second quarter's hotel EBITDA margin outpaced the same period in 2019 by more than 100 basis points. Overall, travelers have shown minimal price sensitivity, not only for room rates, but also for F&B offerings, banquet rentals, parking, and other areas of income. Turning to our corporate activity in the quarter, in June, we announced the company completed the sale of the Doubletree by Hilton Raleigh Brownstone in Raleigh, North Carolina, for $42 million. This purchase price represents a 1.3% cap rate on 2021 performance, a tremendous valuation for an asset that was in need of a major lifecycle renovation. Later in the month, we announced the company modified its existing mortgage loan with Fifth Third Bank, secured by the Hotel Alba Hotel in Tampa, Florida. The loan modification increased principal balance to $25 million, extended the term by three years with two one-year extension options, decreased the floating interest rate by 1% to SOFR plus 2.75%, and reduced the corporate guarantee. The proceeds from these two transactions with a small amount of unrestricted cash were used to repay the Kemmons-Wilson Company's secured note. Dave will provide more details on this series of transactions later in the call. I will now turn the call over to Tony.