Good morning, all, and thank you for joining us for the Southerly Hotels Q2 2025 conference call on webcast. My name is Carly, and I'll be coordinating your call today. If you'd like to register a question during the call, you can do so by pressing star followed by 1 on your telephone keypad to remove yourself from the line of questioning. We start followed by 2. I'd like to hand over to our host, Max Sims, vice president of operations. The floor is yours.

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. I'll start off today's call with a review of our portfolio's key operating metrics for the second quarter. Looking at the second quarter results of the composite portfolio compared to 2024, RevFAR decreased 5.4%, driven by a 3.5% decrease in occupancy and a 1.9% decrease in ADR. Stripping out Tampa from the results due to continued impact of the property from Hurricane Helene, which struck Tampa in late September 2024, the second quarter's composite portfolio, RevFAR, decreased slightly better 5% compared to prior year, driven by a 2.3% decrease in occupancy and a 2.8 percent decrease in ADR. Year-to-date REVPAR performance for the composite portfolio represents a decrease of 0.5 percent from the same period in 2024, driven by a 0.9 percent increase in occupancy and a 1.5 percent decrease in rate. Once again, stripping out Tampa from the results, composite portfolio delivered slightly better results, decreasing 0.1 percent compared to prior year, driven by a 2.1 percent increase in occupancy and a 2.1 percent decrease in rate. During the second quarter, our portfolio of hotels underperformed expectations against the backdrop of growing economic uncertainty and softening demand. While certain leisure destinations showed pockets of stability, overall performance was impacted by a pullback in government-related travel due to Doge program spending cuts, as well as more cautious consumer behavior in the face of persistent inflation and economic unease. Doge-related spending cuts had a notable impact on group and business traveler demand at our Washington, D.C. MSA properties in Arlington and Laurel. Our hotels in Savannah and Atlanta, where association business represents a meaningful share of group room nights, were also adversely affected. Additionally, uncertainty around national tariff policies contributed hesitancy among business travelers, particularly in several of our secondary and drive-to markets. These factors create a more challenging operating environment than we had anticipated, and we remained focused on disciplined cost management and targeted revenue strategies as we navigate the remainder of the year. Despite these macroeconomic headwinds, our portfolio's ADR remained resilient, reflecting the strength of higher-end travelers as well as our overall pricing strategy. As previously noted, Hotel Alba in Tampa continued to experience some operational disruption in the second quarter due to elevator repairs following flood damage from Hurricane Helene. While restoration is ongoing, we are making steady progress and anticipate a full return to normal operations later this month. Importantly, our headline operating metrics, occupancy, ADR, and REVFAR reflect the temporary impact on a pre-insurance basis, while our reported revenue and profitability benefited from business interruption insurance proceeds, helping to mitigate the financial effects during the quarter. Looking at some highlights from a few key assets in the portfolio during the quarter. Hotel Ballast in Wilmington posted another solid performance in the quarter, exceeding budgeted expectations. RevPAR increased 1.3% year-over-year, driven by a 2.7% gain in average rate, partially offset by a modest 1.3% decline in occupancy. The hotel benefited from continued strength in group demand, along with strong banquet and catering revenue. Hotel Ballast remained a market leader, finishing the quarter with a RevFAR index of 119.6% versus competitive set. The Doubletree Philadelphia Airport delivered a solid second-quarter performance, surpassing budget expectations despite ongoing softness in market ADR. While RevFAR declined 5.3% year-over-year, driven by a 6% decrease in ADR, this decline primarily reflects the absence of several one-time events that boosted results in the prior year. Looking ahead, we remain optimistic about the hotel's outlook, supported by improving group bookings and strengthening citywide demand drivers. The Hyde Beach House delivered strong results in the second quarter, outperforming both budgeted and prior year expectations. RevFAR increased 12.7%, driven by an 18.5% gain in occupancy, partially offset by a 4.9% decline in ADR. Performance was bolstered by robust spring break leisure demand and increased demand related to the FIFA Club World Cup. Profitability remained solid, supported by diversified revenue streams, including centralized housekeeping and parking operations. Looking at portfolio profitability, hotel EBITDA margin declined by 2.5% year-over-year for the quarter, primarily due to RevPAR softness in Savannah, Atlanta, and Jacksonville. While these results came in below our expectations, we believe the outsized impact from DOGE-related spending cuts and tariff policies is temporary in nature. Encouragingly, our operators were able to maintain rate discipline despite these headwinds, signaling that demand among higher-income customers remains resilient. Looking ahead, we expect margin trends to remain relatively stable, supported by normalized staffing levels, steady MENDE offerings, and easing wage pressures across the portfolio. Turning to corporate activity, we are proactively managing upcoming debt maturities tied to our assets in Atlanta and Hollywood. While broader debt market conditions remain uncertain, we are confident in our ability to work constructively with our lending partners. As disclosed in early July, we engaged a consultant that is in the process of helping us negotiate a loan extension with a special servicer for the Georgetown Tariffs Hotel in Atlanta. Looking ahead, we are also confident in our ability to address the upcoming maturity of the mortgage loan secured by the Doubletree in Hollywood, Florida. We remain committed to a disciplined, conservative approach to capital management supported by a well-staggered maturity schedule that offers meaningful flexibility in the current financing environment. With that, I'll now turn the call over to Tony.

Thank you, Scott. Reviewing performance for the period ended June 30, 2025. For the second quarter, total revenue was approximately $48.8 million, representing a decrease of 3.7 percent over the same quarter in 2024. Year-to-date, total revenue was approximately $97.1 million, representing a decrease of 0.1 percent from the same period last year. Hotel EBITDA for the quarter was approximately $13.9 million, representing a decrease of 11.5% from the same quarter in 2024. Year-to-date, Hotel EBITDA was approximately $26.8 million, representing a decrease of 4.4% over the same period last year. For the quarter, adjusted FFO was approximately $4.8 million, representing a decrease of approximately $2.7 million from the same quarter in 2024. And year-to-date adjusted FFO was approximately $9.3 million, representing a decrease of $3.4 million from the same period last year. Please note that our adjusted FFO excludes charges related to the early extinguishment of debt, unrealized gains and losses on derivative instruments, charges related to aborted or abandoned securities offerings, ESOP, and stock compensation expense, as well as other items. Hotel EBITDA excludes these charges, as well as interest expense, interest income, corporate, general, and administrative expenses, realized gains and losses on derivative instruments, the current portion of our income tax provision, and other items as well. Please refer to our earnings release for additional detail. Looking at our balance sheet as of June 30th, 2025, the company had total cash of approximately $26.5 million, consisting of unrestricted cash and cash equivalents of approximately $10.5 million, as well as approximately $16.5 million, which was reserved for real estate taxes, insurance, capital improvements, and certain other items. At the end of the quarter, we had principal balances of approximately $315.8 million in outstanding debt at a weighted average interest rate of 5.89%. Approximately 84.4% of the company's debt carried a fixed rate of interest when taking into account the company's interest rate hedges. We anticipate routine capital expenditures for the replacement and refurbishment of furniture fixtures and equipment will amount to approximately $7.1 million for calendar year 2025. Significant portion of the product improvement plans at the Doubletree by Hilton Philadelphia Airport and the Doubletree by Hilton Jacksonville Riverfront will occur during the year, with anticipated capital expenditures related to both these projects totaling $5.6 million for calendar year 2025. Turning to guidance. We're issuing updated guidance to reflect full year 2025, accounting for current and expected performance within the portfolio, taking into account market conditions as well. We're projecting total revenue in the range of $185.2 to $188.2 million for full year 2025. And at the midpoint of the guidance, it represents a 2.6% increase over the prior year. Hotel EBITDA is projected in the range of $45.3 to $45.8 million. At the midpoint of the guidance, this represents a 2.6% decrease from the prior year. And adjusted FFO is projected in the range of $6.9 million to $7.5 million, or 34 to 37 cents per share. And I'll now turn the call over to Dave.

Thank you, Tony. Good morning, everyone. In the second quarter, we experienced a modest reduction in hotel demand across the portfolio, with a majority of our competitive set properties reporting year-over-year REVPAR declines. This softening aligns with broader macroeconomic headwinds, including elevated interest rates and the continued impact of tariff-related policies. Despite these pressures, business transient demand remained relatively steady, with only a slight year-over-year dip, underscoring the resilience of this high-value segment. Group booking pace for the remainder of the year also remains intact, with only minor reductions compared to 2024, supporting our expectation for a gradual recovery as market conditions stabilize. From a macro standpoint, recent federal policies introduced a higher level of uncertainty, contributing to reduced near-term visibility across the lodging sector. This backdrop has weighed on consumer sentiment and resulted in softer overall demand. Government-related travel has also slowed, particularly at our hotels in the Washington, D.C. area, Savannah, and Atlanta markets markets where government and association business represent a meaningful share of revenue. We believe tariff-related policies have had a direct impact on the leisure segment, particularly among price-sensitive and international travelers. Inflationary pressures and rising costs on consumer goods have constrained discretionary spending, leading to shorter booking windows, lower average lengths of stay, and more cautious travel behavior overall. These effects were especially pronounced in our drive-to leisure markets where weekend demand has historically been strong. Savannah, in particular, saw an outsized impact during the quarter with REVPAR down nearly 10% year over year. Despite these results, we remain confident in the long-term fundamentals of the Savannah market and expect performance to recover as macro pressures ease. On the group side, total production declined 7% in the second quarter. That said, group pace for the remainder of the year remains healthy, and we have not seen the widespread cancellations that typically accompany more severe economic downturns. In some markets, such as Arlington, where second quarter group revenue increased 42% over prior year, our operators were able to offset declines in government business by backfilling with additional group bookings. As overall demand trends for our portfolio have moderated, we're approaching the back half of the year with a more measured outlook. Still, we remain confident in our operators' ability to adapt quickly and execute targeted sales and revenue strategies to navigate the current environment effectively. As Scott referenced in his prepared remarks, the mortgage markets continue to challenge borrowers as loans mature and refinancing assets remain difficult. We continue to navigate this environment with loan restructuring, extensions, modifications, and asset sales. For example, as we recently disclosed, we have entered into a purchase and sale agreement to sell our parking garage in Atlanta adjacent to the Georgian Terrace Hotel. This sale, coupled with a new mortgage loan on the hotel, will allow for the extinguishment of the existing CMBS loan that matured in the second quarter. We further expect that a change in interest rates will provide a much-needed lift to commercial real estate lending. Southerly will benefit from such developments as well as an environment characterized by more stable macroeconomic conditions. As we look toward the second half of the year, we remain cautiously optimistic about the overall trajectory of the lodging industry. While elevated interest rates, persistent inflationary pressures, and geopolitical uncertainty continue to weigh on consumer and corporate sentiment, we're taking a more measured view of the near-term pace of hotel demand. That said, our portfolio is well-positioned to navigate these challenges. We believe our concentration in upscale and upper upscale assets will allow us to outperform the broader market in 2025. Booking trends remain relatively healthy, and at this time we anticipate full year 2025 REVPAR for the actual portfolio to be approximately flat compared to last year. Supported by continued proactive asset management, we remain confident in our ability to deliver strong relative performance in a complex operating environment. And with that, operator, we can open the call up to questions.

Thank you very much. we now have to open the line for the q a if you'd like to ask a question please signal with pressing star followed by one on your telephone keypad if you'd like to remove your cell phone line questioning be star followed by two as a reminder to raise a question will be star followed by one our first question comes from alexander goldsaab from piper sandler alexander your line is now open hey uh good morning down there uh dave just hey i i have a few questions here.

The first one, though, was interested. I think if I heard you correctly, you said Savannah was the hardest hit hotel in the quarter. And I can understand Arlington and Laurel, given Doge. But can you just talk a little bit more about Savannah? Maybe there's more government there than I thought. But that comment stuck out to me for why that hotel would have been the hardest hit, again, if I heard you correctly.

Well, I don't think I said it was the hardest hit. It had some outsized negative impact. The quarterly rev bar was down significantly in the market. Part of it was transient travel was off, and we do have, surprisingly, there is a lot of government business that was impacted by the DOGE-related activities in the quarter. And, Scott, you got anything to add?

Yeah, I mean, that's, you know, it's twofold. Again, I think, you know, leisure travel in Savannah has reached a crest of a bit. You know, I think we've really, you know, seen a tremendous growth from the leisure segment there over the past five years, and then we've topped out for at least for the time being. But on the group side, as Dave mentioned, I think what we've been, you know, a bit surprised by as the doge cuts have really unfolded is how far that money goes and the type of group business that we typically book at hotels outside the DC MSA that benefit from government-related funding. So Savannah and Atlanta, I think, as we mentioned, and a bit in Jacksonville as well, you know, we're seeing group cancellations or just a pullback in certain group leads. that ultimately are related to government funding that you wouldn't traditionally expect to be government-related business. Think of education associations, those type of things that you don't immediately think of as a government group, but ultimately get their funding from the government.

Okay, and maybe along that line, again, this is all sort of learning more about portfolio and in the reach of government what percent of your of your as you look at your portfolio what percent is government is it like 20 30 10 like what you know if we had to break out your portfolio between government you know group business and transient what would be the mix between those three segments yeah alex i mean i don't want to give you a firm number because again, it's, you know, we would traditionally have a firm government group number that I could probably tell you, but what we're seeing, and that's probably, you know, in the high single

digits, low double, probably high single digits, I would guess, again, mainly focused on those DC hotels that are truly government group-related business, and then a little bit, you know, throughout the rest of the portfolio. What we're seeing now are group bookings that, again, And nobody would ever tie them directly to the government, and they aren't officially government-tied. Just the funding, the way that the flow of funds has been coming through the government and have been restricted, you've just seen a pullback in near-term booking pace or lead generation. So, again, I don't think it's necessarily people that have gotten their funds cut. There are groups that I think are hesitant to proceed forward until they have a clear picture on, you know, what all funding they're going to be getting on the foreseeable future.

Yeah, Alex, I mean, it's like having a private consulting firm that has a group booking at a hotel, but all of its revenues come from the federal government. So when they have a pullback, then that corporate account cancels its booking. But it's all ultimately tied to the government. But it's kind of difficult to disaggregate all that and give you a percentage number.

Yeah, and I think the final piece on there, again, we're not really seeing cancellations per se. It's been either groups that follow through at their meeting but are more hesitant to overspend on banquet and catering like they've traditionally done. I think we saw a lot of that impact in Savannah on a year-over-year basis. We had a lot of groups in-house. Last year they bought the kitchen sink in terms of banquet and catering amenities. This year they spent less because they weren't sure, you know, what their full, you know, funding outlook looks like. Or the lead generation has just temporarily stalled for kind of in-the-year, four-the-year bookings, and I think that's certainly a temporary, you know, a temporary impact that's going to just spurn back up here.

And then your guidance reduction, that reflects further government-related pullback, or you think that this level where you're at in the second quarter is the new level?

From a revenue perspective, that reflects our most recent forecast for the entire year. So we've re-forecasted the entire portfolio for the balance of the year with all the trends that we're currently seeing, both on group and leisure side of the equation. And I think that's our best outlook based on the trends we're currently seeing.

But directionally, Scott, you think between government, group, and leisure, you think that they'll maintain second quarter, that sort of annualized pace, or you're expecting further declines across all three, maybe just government? I'm just trying to get a little bit, you know, sort of like Thomas's nooks and crannies. I'm just trying to get the little, you know, nooks and crannies on those three different buckets for the balance of the year.

Yeah, we're not expecting, you know, further pullback necessarily. We actually have pretty solid group bookings for the back half of the year. So we're seeing some growth from a group perspective for the back half of the year on a year-over-year basis.

And what about leisure and government?

Government, I think, is, again, it's declined, and we assume it's going to kind of stay steady state going forward for the balance of the year until things unlock. And leisure is a market-by-market analysis. But we're not expecting that to further erode beyond what we've seen thus far. okay so really group you expect the rebound that's right second quarter a second quarter unfortunately was a step backwards on a year-over-year basis for group we expect that to be a step forward on a year-over-year basis for the second half of the year based on the bookings we have on you know revenue we have okay perfect and then uh going on on uh you know sources uh of capital Obviously, you announced the parking garage at Georgian Terrace.

Are there other asset sales planned, whether it's perhaps a hotel, but more likely another type of parking lot or something that's tangential to a hotel that you may be able to sell?

Yeah, there are options that we are always looking at. So the parking garage in Atlanta is a good example of an option like that, but also we have a lot of equity in some of our hotels that also we can tap into and we plan to tap into for refinancing to raise liquidity. But there are things here and there, whether it's a parking garage or a parking lot at various hotels or sales an asset maybe online if that's necessary for the company although we certainly don't want to do that okay and then just final question appreciate your time uh you know in other property sectors even like office we're seeing the mortgage market come back for office not all office but obviously if it's a good quality asset.

Presumably hotels have fully recovered since the pandemic. Why is the mortgage market for hotels still challenged? Is it that the lenders still don't view the industry as recovered, or was it just LTVs back in the day were still meaningfully higher than where terms are today? I'm just trying to get a better sense for why the hotels would still be challenged in the debt market?

Alex, we look at that all the time. And lenders, whether they are conduit lenders or insurance companies or banks, debt yields are still stubbornly high, at least compared to the debt yield climate that existed before the pandemic. So there's still several hundred basis of variance between the underwriting that occurred prior to the pandemic and what we're and now. Interest rates obviously are elevated, but they have come in and we expect them to come in further. And debt service coverage ratios and covenants are simply a lot tougher than they used to be. And it's the lender's caution that creates that environment. So you add up all of those various factors and the lodging industry is still either not in favor with the lending community or just having to recover from a more buoyant lending environment that occurred five or six years ago. So I think we're seeing cracks there that you're seeing debt service coverage ratios ease in underwriting. We're underwriting a lot of properties right now. We're seeing debt yields stop rising. So they're seeing some stabilization there, and we're seeing rates come in. So, I think things, as I mentioned in my prepared remarks, you know, we're seeing the climate alter to the better, at least for lodging borrowers, and we think that'll continue.

Okay.

Thank you.

Thanks, Alex.

Thank you very much. As a reminder, if you would like to raise a question, please signal by pressing star follow-up by one. We'll ask for any further questions to filter in. We currently have no further questions, so I'd like to hand back to David Folsom for any further remarks.

Thank you, operator, and thank you for everyone who dialed in today. And I wish everybody have a good day, and we'll talk to you next quarter.

As we conclude today's call, we'd like to thank everyone for joining. You might disconnect your lines.