Hello, everyone and welcome to the Sotherly Hotels Second Quarter 2022 Earnings Call and Webcast. My name is Victoria and I will be coordinating your call today. I’ll now pass over to your host, Mack Sims, 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 sotherlyhotels.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, Mack. Good morning, everyone. I'll start off today's call by reviewing 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 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% but ADR increasing 8.3%. Year-to-date, RevPAR for the same-store composite portfolio was $114.31 with occupancy of 62% and an ADR of $184.49. Year-to-date RevPAR performance represents an increase of 42.5% over the same period in 2021. Looking at these figures versus a comparable period in 2019, RevPAR was down 11.2% with occupancy down 15.5% and ADR increasing 5.2%. Overall, we are 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, benchmarked against 2019, highlights the portfolio's strong performance which hovered near pre-pandemic levels throughout the quarter. April RevPAR was nearly 102% of April 2019 RevPAR. May's RevPAR was nearly 98% of May 2019, while June's RevPAR was more than 98% of June 2019's RevPAR. Our portfolio's second-quarter results continue to build on a strong recovery that began in March of this year. A faster-than-expected improvement in group and business travel combined with sustained strength in lease demand, resulted in our portfolio outperforming our prior forecast. 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 posted 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 of ideally located coastal hotels experienced extraordinary leisure demand during the quarter. The 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 seller leisure travel was layered with the return of group business at the hotel. The property easily outpaced 2019 metrics with a 22.5% gain in RevPAR fueled by significant rate growth of 20.4% and occupancy growth of 1.9% 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 RevPAR of 36.7%, fueled by a 33.5% increase in ADR and a 2.3% gain in occupancy. The property also improved its standing among its competitive set, gaining 330 basis points in RevPAR share from its competitors during the quarter. The Hyatt Centric 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 of RevPAR share further solidifying its position as the market leader. Examining our portfolio's recent booking trends highlights a steady acceleration in group and business travel at our hotels. During the second quarter, the group segment recorded a 132% improvement over the first quarter of 2022, while business travel increased more than 66% over the first quarter. Compared 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 of the second quarter in 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 promising indicators for the 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 rates 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, banker 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 life cycle renovation. Later in the month, we announced the company modified its existing mortgage loan with Fifth Third Bank secured by the Hotel Alba in Tampa, Florida. The loan modification increased the principal balance of $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, along 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.

Thank you, Scott. Reviewing performance for the period ended June 30, 2022. For the second quarter, total revenue was approximately $47.2 million, representing an increase of 37.2% over the same quarter of 2021. Year-to-date, total revenue was approximately $85.5 million, representing an increase of 50% over the same period last year. Comparing current performance with pre-pandemic levels, total revenue for the second quarter increased to 91.5% of total revenue for the same period in 2019, and on a year-to-date basis, total revenue increased to 86.4% of total revenue for the same period in 2019. Hotel EBITDA for the quarter was approximately $14.8 million, representing an increase of 52.9% over the same quarter last year. Year-to-date, hotel EBITDA was approximately $24.7 million, representing an increase of 78.5% over the same period in 2021. Comparing current performance to pre-pandemic levels, hotel EBITDA increased to 94.8% of hotel EBITDA for the same period in 2019, and on a year-to-date basis, hotel EBITDA increased to 86.1% of hotel EBITDA for the same period in 2019. For the quarter, adjusted FFO was approximately $6.2 million, representing an increase of $5.1 million or almost 445% over the same quarter last year. Year-to-date, adjusted FFO was approximately $7.5 million, representing an improvement of approximately $11 million or about 310% over the same period in 2021. Comparing current performance to pre-pandemic levels, adjusted FFO increased to 86.7% of adjusted FFO for the same period in 2019, and year-to-date adjusted FFO increased to 62% of adjusted FFO for the same period in 2019. Please note that our adjusted FFO excludes charges related to the early extinguishment of debt, 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 G&A expenses, 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 30, 2022, the company had total cash of approximately $31.4 million, consisting of unrestricted cash and cash equivalents of approximately $24 million as well as approximately $7.4 million which was reserved for real estate taxes, capital improvements, and certain other items. Looking ahead to the third quarter, the company estimates the cash generated at the hotel level to range between $10 million and $10.25 million. We expect corporate level G&A expenses of about $1.75 million and capital expenditures are expected to be approximately $2.1 million for the quarter, while outlays for scheduled payments of principal and interest are expected to be approximately $6.3 million for the quarter. Overall, we're expecting cash used by our portfolio to range between $1.7 million and $1.95 million for the third quarter. It's important to note that most of the cash used in the period relates to scheduled repayment of deferred interest in principal originating from forbearance received during the pandemic. Since December 2020, we have removed approximately $55.3 million of debt from the company's balance sheet using proceeds of approximately $52.2 million in asset sales. During that period, we also reduced deferred interest to our lenders and deferred fees due to certain vendors, all of which was granted through various forbearance agreements. We've reduced all this by approximately $8 million. We expect that all such repayments of deferred interest and principal from forbearance granted during the pandemic will be complete by the end of 2022, another important chapter in the company's recovery from the pandemic's financial impact. At the end of the quarter, we had principal balances of approximately $334.4 million in outstanding debt at a weighted average interest rate of 4.76%. Approximately 96% of the company's debt carries a fixed rate of interest after taking into account the company's interest rate swap agreements. As we enter a more normalized operating environment, we anticipate capital expenditures to be more in line with historical norms and estimate capital expenditures will amount to approximately $6.3 million for calendar year 2022. In March of 2020, we announced the suspension of our dividend and a deferral of payment on dividends on our common stock that we had announced two months prior. The suspension of dividends drew on the company's cash reserves of approximately $4.5 million per quarter. And I'll now turn the call over to Dave.

Thank you, Tony, and good morning, everyone. The second quarter marked an important milestone for the company, both operationally and in terms of balance sheet management. The compelling year-over-year improvements as well as performance relative to 2019, point to not only the strength and pace of the lodging recovery but the position and management of our assets in their respective markets. Room rates continue to surprise to the upside, while flexible management models continue to offset costs. We expect this momentum to continue as same-store composite ADR during the month of July outperformed the same period in 2019 by 11.7%, leading to a 1.4% gain in RevPAR. As a result, hotel EBITDA margins continue to perform to or exceed our expectations. Additionally, in the quarter, we fully repaid the company's outstanding loan with the Kemmons Wilson Companies. This loan originated during the depths of the pandemic, had a three-year maturity date, and it was paid off in 18 months. This event marks a major step forward in stabilizing the overall health of the company and puts us in a much stronger position to focus on our core business and to address other areas of our balance sheet. Our portfolio's recovery maintained its positive trajectory during the second quarter as the continued strength in leisure travel was combined with the return of group and corporate demand. As Scott mentioned, the second quarter produced approximately 86% of the group bookings during the same period in 2019, which is a promising sign for the industry and our company. Currently, our portfolio's overall group booking pace for 2022 is trending positively, rising to approximately 75% of the same pace in 2019, a 500 basis point increase from a quarter ago. Though the resurgence of group demand boosted all of our assets, our impacted urban locations witnessed the most impressive sequential improvement, driven primarily by the return of corporate group demand. In the quarter, midweek demand at the Hyatt Centric in Arlington surged as our corporate accounts returned to near pre-COVID demand levels. While the recovery of our urban hotels is encouraging, there is plenty of room for improvement as transient business travel during the second quarter was still 34% below the same period in 2019. We are forecasting further progress for transient business travel during the fall months. Although we expect the pace of recovery in this segment to vary significantly by location, we are encouraged by the booking trends we are seeing throughout our portfolio. The completion of several key strategic initiatives during the quarter represents a transformative shift in the outlook for the company. First, the sale of our Raleigh asset allowed us to reduce mortgage debt and repay expensive corporate leverage while eliminating significant near-term CapEx required for life cycle improvements at that hotel. Secondly, at the end of the quarter, we announced the loan modification for our Tampa hotel, with improved loan terms that resulted in additional cash proceeds. The significance of these series of transactions can't be overstated as it allowed for the complete repayment of the Kemmons Wilson Company's loan and as a result, the elimination of high interest current payments, onerous loan covenants, and a significant interest reserve. In making these important balance sheet improvements, the company can focus on additional post-COVID efforts, including addressing its preferred dividend obligations. At the end of the second quarter, the company had approximately $439 million in debt, preferred stock, and accrued forbearance-related liabilities, a decrease of approximately $81.5 million from the end of 2020 when the company had approximately $508 million in debt, preferred stock, and accrued forbearance liabilities, inclusive of the exit fee payable on the Kemmons Wilson note. Despite ongoing macroeconomic and geopolitical pressures, encouraging booking trends with strong room rates, the steady return of corporate and group business, and continued pent-up leisure demand bring optimism for the sustained recovery of our business. We believe these factors, as well as our portfolio's ideal locations concentrated in Southern coastal markets, will continue to fuel our growth prospects for the remainder of 2022 and beyond. And with that, operator, we can open the call up for questions.

Impressive solid job on the recovery pretty cool versus two years ago. So just a few questions here. First, I mean, the country is sort of, I think, over COVID, certainly when you go to the airport, assuming that your flight is not canceled, the airports are crowded with people on flights. You travel around, the hotels are full. So you guys listed a number of metrics that were ahead of 2019 and some that were still behind. You mentioned that urban hotels have been catching up but it sounds like still lagging. What would you say is the key issue in sort of getting the portfolio uniformly back above 2019? Is it your view that fallout from COVID is still having an impact? Is it inflation that’s crimping business spending or crimping personal spending? Or what do you think are the key hurdles to getting the portfolio uniformly back above 2019?

Well, I think there's kind of a waterfall of demand, and we've seen the leisure demand come back first and now we're seeing group return and business travel return sort of in that order. The urban markets were the last to see that demand recovery. So to get back to where we need to be holistically in 2019, I think you're going to have to see the continued evolution of group demand which we are seeing right now and the return of business travel.

Alex, I mean, I'll just add. I mean, and we're seeing that come back differently in the different urban markets. Anecdotally, D.C., Arlington, we made mention of how strongly that's come back here over the past quarter. And that trajectory is continuing to be pretty vertical. I mean, that team thinks this fall, they'll have similar business travel demand that they had prepandemic. We're not seeing that strong of business travel recovery at some of the other urban markets; it's a little bit slower. So you're seeing business travel really surge in a few of the markets and still lag in a couple of others, but it's all moving in the right direction.

What is causing the slowdown in business travel? Is it due to a recession? Is it simply because of travel and entertainment inflation leading companies to restrict employee spending? What do you think is contributing to this situation?

I mean, again, I mean, I think it's really not being held back in certain areas. And we only have a few markets and hotels that are really relying at all on business travel. But if you look at the main urban markets, which is Philadelphia being an airport market, relying on some business travel, they're still a little behind, but they're coming back. Airlift is continuing to pick up. So as you noted, airports are getting fuller and fuller. So I don't think anything is holding it back. It's just a steady increase. I just noted Arlington, Houston is more aligned on citywide events and that's a longer-dated recovery. I mean they kind of missed. They had a few citywide events this year, much more than they've had in the past two years, but that's a slow build. So I think next year, we'd look for more citywide events to really drive that recovery of that market and that hotel. And Atlanta is a little similar as well. So Atlanta is kind of in the middle of the pack between Houston and D.C. in terms of its recovery, but we're seeing those city-wide events really start to build back as well.

Okay. And then… So confirming one that all of the forbearance and the COVID modifications to loans, it sounds like you’re going to all be caught up by year-end. Is that the case? So any sort of deferred interest payment or principal payment or anything of that sort, by the end of this year, you anticipate being fully back to normal course debt service by the end of the year?

That's correct, Alex. To be honest, there isn't much left. We're in the second half of the year now, and there’s just a bit remaining. By the end of the year, the legacy forbearance will definitely be finished.

So, for comparison, how much have you paid off and how much is left to catch up?

This is Tony here. As of June 30, we have about $3 million left. I just checked my numbers, and we had paid off about $5 million during the year.

Okay. Does that mean that all of the loans, including the Alba loan with improved terms, are now back on their regular schedule for refinancing? Or is there anything else that needs to be addressed with any outstanding loans?

No, the calendar we published in the quarterly report shows our term structure. I believe the next loan scheduled for refinance is in Houston. There will be some work required on certain assets, but we are returning to normal operations and are not negotiating any forbearance, if that was your question.

Okay. The final question is last quarter you had a positive cash flow that you forecasted for this quarter, but it's negative. I believe that's due to the payments you're making. You still have a hold on the preferred dividend that's accruing, and you're not paying the common dividend. Regarding cash flow, based on your comments, should we expect that by the first quarter of 2023, assuming everything remains the same, the company will return to a positive cash flow situation and we can start considering the resumption of dividends? Or is that being overly optimistic?

I want to clarify that we are not currently paying common dividends.

I thought that if I could speak on that.

So, we're not currently paying common or preferred dividends. As I mentioned in our previous calls, we needed to address some balance sheet issues before focusing on preferred dividends. Our plan is to start paying preferred dividends, but I can't provide a specific date or amount at this time. Now that we've paid off the significant Kemmons Wilson note and its penalties, we are examining the preferred dividends. I hope we can provide a more definitive answer soon. Our goal is to return to normal operations where we would be paying a common dividend.

At this time, there are no further questions. I would now like to turn it over to David Folsom, CEO, for final remarks.

Thank you all for listening in today and we look forward to speaking with everyone next quarter.

Thank you, everyone, for joining today's conference call. You may now disconnect.