Hello, and welcome to the Sotherly Hotels Q1 2020 Earnings Call and Webcast. My name is Lauren, and I will be coordinating your call today. I will now hand you over to your host, Mack Sims, Vice President, 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 that 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 with a review of our portfolio's key operating metrics for the first quarter. Looking at first quarter results for the composite portfolio compared to 2023, RevPAR increased 3.8%, driven by a 7.5% increase in occupancy and a 3.3% decrease in ADR. Looking at the first quarter results for the composite portfolio relative to 2019, first quarter RevPAR was up 1.4%, driven by ADR growth of 9.3% and occupancy down 7.2%. This occupancy gap to pre-pandemic levels reflects the significant upside for the portfolio moving forward. Overall, our portfolio's first quarter results, which were driven by strong occupancy growth, outperformed both top and bottom line budget expectations. The notable growth in occupancy indicates lodging fundamentals across our portfolio are nearing normalization following the uneven post-pandemic recovery period. Although the impressive occupancy gains were partially offset by a 3.3% decline in ADR, this drop in rate was almost entirely isolated to our South Florida properties. Our group-focused properties continued to be a key catalyst of growth for our portfolio as our Wilmington and Savannah hotels, both of which easily outperformed prior year RevPAR, led this segment during the quarter. The DeSoto Savannah was particularly noteworthy, with first quarter RevPAR outperforming the prior year by 11% and outperforming Q1 2019 by nearly 32%. The Hyatt Centric Arlington, driven by strong year-over-year growth in the group and corporate segments, continued to fire on all cylinders during the first quarter. The property outpaced the prior period's RevPAR by 6.7%, driven by a 3.8% increase in occupancy and a 2.7% increase in rate. Versus the comparable period in 2019, RevPAR improved by 12.7% with occupancy flat and ADR up 12.7%. The property continues to be the leader in its competitive set, achieving a RevPAR index of over 124% during the first quarter. The continued strength of our group-focused hotels was coupled with the long-awaited breakthrough in business transient performance at our slow-to-recover urban hotels in Atlanta and Houston during the first quarter. The Georgian Terrace in Atlanta has management's efforts to drive increased corporate and association business to the hotel proving successful during the quarter as occupancy improved more than 25% over the prior year. In addition, the potential for recovery in the film industry business segment presents additional growth prospects moving forward. The Whitehall in Houston improved its RevPAR by nearly 21% over the prior year, which was fueled by a nearly 22% gain in occupancy. The Whitehall's occupancy improvement was predominantly driven by growth in the transient business segment, which was up from the prior year by nearly 30%, an encouraging sign of recovery for the hotel and the downtown Houston submarket. We are optimistic that recent momentum in Atlanta and Houston will carry forward as the pre-pandemic occupancy gap that remains in these hotels presents significant upside opportunity. Looking at profitability metrics for the portfolio, although hotel EBITDA margins for the first quarter 2024 were 120 basis points below the prior year, the decline was solely tied to increased property and insurance costs in Q1 2024 versus the prior year. With our insurance renewal that occurred on April 1, we are pleased to say the insurance markets have softened a bit and our costs have been reduced. With our amenity offerings now fully open, staffing and wages stabilized, and a reduction in insurance costs, we expect margins to normalize going forward. Turning to corporate activity, last week we announced the company executed an extension on its first mortgage loan to the DoubleTree Philadelphia Airport Hotel. The interest-only loan, which has been reduced by $3 million to $35.9 million, matures in April 2026 and carries a floating interest rate based on SOFR plus 3.5%. As part of the transaction, we purchased an interest rate cap, capping SOFR for a portion of the loan at 3%. In addition, we announced that the company entered into a 10-year franchise agreement with Hilton Worldwide to relicense the hotel under the DoubleTree by Hilton flag. As part of the new agreement with Hilton, the company will undertake a renovation of the property with an estimated cost of approximately $11.5 million and an estimated completion date of April 2026. Renovation plans for the property will include upgrades to guest rooms, public spaces, food and beverage spaces, and the building's exterior. Lastly, in April, we announced the company executed a $35 million secured loan with Citi Real Estate Funding on the Hotel Alba in Tampa, Florida. The interest-only loan matures in March of 2029 and carries a fixed interest rate of 8.49%. This refinancing represents a culmination of our repositioning strategy, which creates substantial value for the hotel and results in cash proceeds of over $10 million for the company.

Thank you, Scott. Reviewing performance for the period ended March 31, 2024. For the first quarter, total revenue was approximately $46.5 million, representing an increase of 7% over the same quarter last year. Hotel EBITDA for the quarter was approximately $12.4 million, representing an increase of 2.3% over the same quarter last year. And for the quarter, adjusted FFO was approximately $4.5 million, representing an increase of approximately 11.2% over the same quarter in the prior 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 G&A expenses, realized gains and losses on derivative instruments and 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 March 31, 2024, the company had total cash of approximately $39.6 million, consisting of unrestricted cash and cash equivalents of approximately $29.3 million as well as approximately $10.3 million, which was reserved for real estate taxes, capital improvements, and certain other items. At the end of the quarter, we had principal balances of approximately $328 million in outstanding debt at a weighted average interest rate of 5.43%. Approximately 83.9% of the company's debt carried a fixed rate of interest. As we enter a more normalized operating environment, we anticipate routine capital expenditures for the replacement and refurbishment of furniture, fixtures, and equipment to be more in line with historical norms. And we estimate these capital expenditures will amount to approximately $7 million for the calendar year 2024. As announced last week, we anticipate beginning a product improvement plan at the DoubleTree by Hilton Philadelphia Airport. We anticipate capital expenditures related to this project to total approximately $3 million this fiscal year. We are reiterating guidance with a forecast of anticipated results for the full year previously disclosed in March. Our guidance considers market conditions and accounts for current and expected performance within the portfolio. We're projecting total revenue in the range of $179 million to $182.6 million for the full year 2024. At the midpoint of this guidance, this represents a 4% increase over the prior year. Hotel EBITDA is projected in the range of $46.1 million to $46.9 million. At the midpoint of the guidance, this represents a 3.8% increase over the prior year. Adjusted FFO is projected in the range of $12.8 million to $13.8 million or $0.64 to $0.69 a share. At the midpoint of the guidance, this represents an 8.7% decrease over the prior year. The year-over-year decrease in adjusted FFO is mainly due to increased interest expense in 2024 and one-time benefits in the prior year for successful real estate tax appeals of our properties in Savannah and Hollywood.

Thank you, Tony, and good morning, everyone. We were pleased with the first quarter results for our composite portfolio, which achieved 3.8% RevPAR growth over the prior year. These strong year-over-year results were especially encouraging, given the timing of the Easter holiday weekend shifting from the second quarter to the first quarter this year. Occupancy was the driver of RevPAR growth as we experienced continued strength in group travel at our properties in Savannah, Arlington, and Wilmington, which performed historically well during the quarter. The excellent performance of these hotels was coupled with significant improvements at two of our hotels in slower-to-recover urban markets, Houston and Atlanta. The return of group and transient corporate travel at these hotels is a positive sign that we've reached a more normalized operating environment, driven by a diverse range of demand generators. Despite the strong year-over-year occupancy improvement for our portfolio during the quarter, we believe there is still significant opportunity for organic growth, especially given our exposure to several urban markets that have been slower to recover. More than half of our portfolio is still tracking below pre-pandemic occupancy levels with our hotels in Atlanta, Houston, and Philadelphia having the most opportunity for improvement moving forward. As mentioned, two of these hotels, the Georgian Terrace and The Whitehall in Houston, are making significant headway penetrating their respective markets during the quarter by driving corporate transient, group, and association business. As one of our largest assets by historical EBITDA contribution, the Georgian Terrace's improvement is an encouraging sign for the company. After significant challenges coming out of COVID in terms of market headwinds, staffing challenges, and property casualties, we believe this hotel is on the right track with a sustainable strategy that will produce future success. Similarly, The Whitehall, which is located in the downtown Houston market, is demonstrating signs of progress following a slow growth trajectory coming out of the pandemic. Our Philadelphia DoubleTree Hotel is competing well against its competitive set in the Philadelphia Airport submarket. But that market continues to be challenged with lower air traffic and fewer citywide events than anticipated at the start of this year. Although taking longer than expected, we believe lodging demand in this market, supported by improved business travel, will make a gradual recovery. Group business continued to drive significant growth to our portfolio during the first quarter, with especially strong performances from our Savannah, Wilmington, and Arlington hotels, all of which achieved historical highs in group revenue for the first quarter. Our sales team at the Hyatt Centric in Arlington produced 108% year-over-year growth and 81% growth over 2019 for the group segment during the first quarter. The DeSoto in Savannah, meanwhile, grew its group by 34% over the prior year and 38% over 2019. Looking at the total portfolio, group business improved by 19% during the quarter, a testament to the successful sales strategy by our management team. The current lending environment, characterized by tight underwriting standards, continues to present challenges for borrowers in the lodging sector. As each loan maturity presents unique obstacles, we are conservatively approaching upcoming debt maturities in our portfolio. After several months of negotiations with the existing lender for the loan on our Philadelphia hotel, last week we successfully executed an extension on that loan. Given the current lending environment and market-related headwinds in Philadelphia, we view the loan terms as a positive outcome for the company. As Scott mentioned, in tandem with this loan extension, we entered into a new 10-year DoubleTree franchise agreement with Hilton, aligning ourselves with a strong brand and positioning the hotel for success in the foreseeable future. Looking ahead, the loan maturity schedule for our portfolio is spread evenly over the next several years with only the loan maturity for our Jacksonville hotel upcoming in 2024. Despite the changing expectations regarding the timing of rate cuts as well as continued economic uncertainty related to persistent inflation, lodging fundamentals for the upscale and upper-upscale segments that represent our portfolio have demonstrated resilience with additional growth anticipated for the balance of the year. Urban hotels, driven by positive corporate and group travel trends, are expected to outperform the broader lodging market. Looking specifically at our portfolio, as of May 1, our group bookings for the second quarter and for the full year are pacing approximately 7% ahead of last year. Full year 2024 RevPAR is forecasted to range between 104% and 106% of full year 2023 RevPAR. So we remain cautiously optimistic that our portfolio of well-positioned hotels, fueled by growth trends in the group and business transient segments, will continue to deliver strong results for our shareholders. And with that, we'll open the call for questions, operator.

Our first question comes from Connor Mitchell from Piper Sandler.

You guys mentioned that the urban markets may be taking a little bit longer to recover to the pre-pandemic levels for occupancy, ADR, etc. I think you touched on a couple of specific markets and how they're improving. But I'm just wondering, is there any specific catalysts for the urban markets in general or maybe more specific catalysts? Or do you just think it takes a bit more time for them to fully recapture the activity from pre-pandemic levels?

Yes. I think the latter part of your comment is probably true. It's just taking a little longer in some of these markets. And each one of these markets has simply different dynamics at play, whether it's Atlanta or Philadelphia or Houston. But eventually, I think what we're seeing is kind of a return-to-work dynamic in place in some of these markets and, at the same time, just a general recovery in business travel that is impacting some of these larger markets. I mean, Atlanta, Houston, and Philadelphia are all fairly large markets. And what we've seen on the urban side is there's no individual catalyst, but at the same time, just the basic blocking and tackling of the hotel business. We're just getting more business travelers and group business coming back to the hotels. You got anything to add, Scott?

Yes. I'll just say besides the return of business travel and return to office, the citywide events are a key catalyst for those larger urban markets just to create compression in the marketplace. And I think that's what we're starting to see in Houston and Atlanta. We're seeing considerably less of it in Philadelphia. Also, us being out at the airport in Philly, we need a lot of compression in downtown to push out to the airport. But again, we're seeing the citywide events start to come back in a larger format in these markets, which really helps the overall market dynamics.

Okay, yes. And then maybe sticking with Philly, you talked about the improvements that are going to take place. Is that going to be kind of a refresh on just some of the rooms and other external items? Or is it going to be more of a whole repositioning in the market for a more broad transformation? Just trying to get a better sense of what that process is going to look like.

Yes, so it's a relicense of DoubleTree. We're not changing the flag. So it's more of a refresh than a whole-scale repositioning. But it is a full renovation; pretty much every bit of FF&E in the building will be replaced over the course of a 24-month period. And I will say that the hotel is in need of it. So it will be a fairly dramatic transformation once we get the new FF&E in there. The product has been fairly dated. It's certainly ridden out its life cycle. So it will be transformative in that sense, but there's not going to be a major repositioning happening. It's going to be kind of a newly refreshed DoubleTree product once we're done.

Okay, appreciate that. And then earlier in the comments, I think you guys mentioned that the drop in ADR was mostly due to the South Florida properties. Correct me if I'm wrong, but I was just wondering if you could go into a little bit more detail on what may have occurred there or what you see going forward regarding those properties or whether there's going to be some more fluctuation in the ADR, along with maybe some expected increase in occupancy.

Yes. It was solely tied to South Florida. I think we're not alone in that commentary. A lot of our peers are seeing the same thing in South Florida, and it really ties to the leisure traveler and what occurred in that market coming out of COVID, right? I mean, South Florida was essentially the first lodging market in the U.S. to recover coming out of COVID very quickly. Obviously, the government in Florida did a good job of opening the doors. And as soon as people were ready to travel, we just saw a massive influx of leisure travel to that market. So we had a period of very high demand and very high rates, and now that's starting to taper off. You're seeing people not travel as much for leisure. You're seeing people predominantly starting to travel and take the opportunity for leisure travel to go overseas or somewhere else. So we're just seeing a bit of a cooling-off in demand in that marketplace compared to where we have been for the past two-plus years coming out of COVID. Rates are starting to see some pricing sensitivity from those leisure consumers. That's just the nuts and bolts of it. But we don't see it declining substantially from here; we're seeing it's fairly stabilized. But it's certainly taking a step back from a rate perspective compared to where we were coming out of COVID.

Okay, we have no further questions. I will now hand it back to Dave Folsom, Chief Executive Officer, for closing remarks.

Thank you, everyone, for joining us on our call today, and we look forward to speaking with everyone in the next quarter. Thank you, operator.

This concludes today's call. Thank you for joining everyone. You may now disconnect your lines.