Sotherly Hotels Inc.

Hello and welcome to today's Southerly Hotel's third quarter 2022 earnings call and webcast. My name is Bailey and I'll be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. I would now like to pass the conference over to our host, Max Sims, Vice President of Operations. Please go ahead.

Thank you and good morning, everyone. If you did not receive a copy of the earnings release, you can 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 with a review of our portfolio's key operating metrics for the quarter. Looking at the third quarter results for the same store composite portfolio, REVPAR was $103.42, driven by an occupancy of 62.7%, and an ADR of $164.97. Third quarter REVPAR performance represents an increase of 12.3% over the same period in 2021. Looking at these figures versus third quarter of 2019, REVPAR increased 2.7%, with occupancy down 7.2%, but ADR increasing 10.8%. Year-to-date REVPAR for the same store composite portfolio was $110.65, with occupancy of 62.2%, and ADR of $177.88. Year-to-date REVPAR performance represents an increase of 31.4% over the same period in 2021. Looking at these figures versus the comparable period in 2019, REVPAR was down 7.2%, with occupancy down 12.9% and ADR increasing 6.5%. Overall, we were pleased with our portfolio's third quarter results, highlighted by sustained strength of demand for leisure travel during the summer months, coupled with strong growth in demand for group business travel. For September alone, REVPAR was up 9% over 2019, with ADR up nearly 11% and occupancy only slightly off the pre-pandemic levels. a definitive indication that we are nearing a normalized operating environment. Examining our portfolio's recent booking trends for business and group travel further validates the thesis that demand from these segments is returning to normalized levels. For the group segment, our portfolio produced 86% of the group business in the third quarter 2022 compared to Q3 2019. However, in September, group business was 106% of group businesses in September 2019. For the business travel segment, our portfolio was at 67% of the business travel produced in Q3 2019, though in September, business travel revenue increased to 78% of the business travel in September 2019. These trends, which have shown further improvement thus far during the fourth quarter, are an encouraging sign for our company. The continued strengthening of the business travel and group segments came across our entire portfolio, but was most noteworthy at our heavily impacted urban hotels in Washington, D.C. and Houston, which experienced the best year-over-year improvements in performance. While contribution from group and business travel at these hotels was at its highest level since the start of the pandemic, we believe there is still significant upside potential for these assets as midweek occupancy continues to grow and forward bookings are trending positively for Q4 and next year. In addition, weekend performance at our urban properties was boosted during the quarter by demand drivers such as concerts, major sporting events, and citywide events, that are now running at or near full capacity. Meanwhile, our portfolio's leisure-focused hotels maintained their strong results during the quarter as leisure demand was combined with the steady return of group demand to produce outstanding results. Rate growth at our leisure-focused hotels was especially strong during the quarter, with rates easily outperforming pre-pandemic levels. Looking at some highlights across the portfolio, the DeSoto Savannah continued its excellent results during the quarter, as the property easily outpaced 2019 metrics with a 36.3% gain in REVPAR fueled by significant rate growth of 27.8% and occupancy growth of 6.7% over 2019. The high eccentric Arlington continues to show strong sequential improvement relative to 2019 fueled by the return of business travel to the hotel. Though third quarter REVPAR was still off 10.1% compared to the same period in 2019, This was a significant improvement over the second quarter. Rate, which was up 8.6% compared to the third quarter of 2019, was the main driver of this improvement. The property continues to outperform its competitive set, and during the quarter, the hotel achieved a REVPAR index of nearly 124% and gained over 8% REVPAR share, further solidifying its position as the leader in the market. Hotel Ballast in Wilmington, North Carolina posted exceptional results for the third quarter, as the hotel drove strong demand from the leisure and group segments, improving RevPAR by 12.3% over 2019, fueled by a 3.2% increase in occupancy and an 8.9% increase in rate. The property continues to perform well versus competitive set, gaining 7.4% in RevPAR share during the quarter. Management's strategic cost control initiatives and revenue management strategies aimed at driving rate led to commendable profitability during the third quarter as we continue to experience margin expansion over pre-pandemic levels. Looking at hotel EBITDA margins for the third quarter 2022 versus 2019, margins expanded 420 basis points to 25.1%. Year-to-date, margins have expanded 110 basis points over 2019 to 27.7%, the highest level in the company's history. While the labor markets are still challenging, this headwind appears to be easing, thus reducing our reliance on expensive contract labor, while also improving the quality of service for our guests. In addition, guests at our hotels continue to show minimal price sensitivity to ancillary revenue drivers, such as food and beverage outlets, parking, banquet rentals, and resort fees. Following a period of greatly reduced offerings during the pandemic, our hotel's reconfigured food and beverage operations are nearing stabilization, providing additional revenue opportunities at our properties. As we navigate the post-pandemic operating environment, margin control will continue to be a crucial area of focus for our managers. All in all, we are pleased with the quarterly operating results for our portfolio and are encouraged by the trends we are seeing going forward. I will now turn the call over to Tony.