Sotherly Hotels Inc. Q2 FY2024 earnings call

• Portfolio operating metrics: Q2 RevPAR, occupancy, and ADR trends compared to 2023 and 2019; year-to-date RevPAR performance.
• Specific hotel highlights: DeSoto's strong performance with well-balanced group and leisure business; Hotel Alba's commendable RevPAR growth; Georgian Terrace's RevPAR growth despite ADR decrease and strong occupancy; Whitehall's RevPAR growth driven by occupancy and transient business.
• Corporate activity: Secured loan on DoubleTree by Hilton Jacksonville Riverfront with details on principal balance and renovation plan; new 10-year franchise agreement with Hilton for Jacksonville Hotel; loan extension for DoubleTree Philadelphia Airport Hotel and its renovation plan.
• Profitability: Hotel EBITDA margins stabilized, with Q2 margin improving 69 basis points Y/Y; occupancy growth allowed exploitation of economies of scale and high margin non-room revenue.
• Group business: Group revenue grew 3.8% Y/Y, with DeSoto and Georgian Terrace showing strong group revenue growth.
• Urban markets: Atlanta, Houston, and Philadelphia hotels showing recovery but still below historic occupancy levels, with upside potential.

For the second quarter, the composite portfolio RevPAR increased 4.3% compared to 2023, driven by a 5.8% occupancy increase and a 1.4% ADR decrease. Relative to 2019, RevPAR was up 7.5% with ADR growth of 11.7% but occupancy down 3.8%. Year-to-date RevPAR was up 4.1% over 2023, driven by 6.6% occupancy growth and 2.3% ADR decrease. Total revenue in Q2 was approximately $50.7 million, a 3.4% increase over the prior year, and year-to-date total revenue was ~$97.2 million, a 5.1% increase. Hotel EBITDA for Q2 was ~$15.7 million, a 5.8% increase over 2023, and year-to-date hotel EBITDA was ~$28.1 million, a 4.2% increase. Adjusted FFO for Q2 was ~$7.5 million, a 6.8% increase over 2023, and year-to-date adjusted FFO was ~$12.7 million, an 8.5% increase. Specific hotels: DeSoto in Savannah grew RevPAR 6.8% Y/Y and >33% vs 2019; Hotel Alba in Tampa grew RevPAR 7.8% Y/Y and nearly 63% vs 2019; Georgian Terrace in Atlanta grew RevPAR 8.5% despite ADR decrease; Whitehall in Houston grew RevPAR 9.4% Y/Y with 18.4% occupancy growth.

Total revenue for 2024 is projected to be in the range of $179 million to $182.6 million, with the midpoint representing a 4% increase over prior year. Hotel EBITDA is projected to be in the range of $46.1 million to $46.9 million, with the midpoint a 3.8% increase over prior year. Adjusted FFO is projected to be in the range of $12.8 million to $13.8 million or $0.64 to $0.69 per share, with the midpoint an 8.7% decrease over prior year.

• Weather-related events: Concern about weather affecting bookings, though a recent hurricane had minimal impact.
• Mortgage market impact: Cautious approach to balance sheet due to mortgage markets and need for capital improvements at properties.
• Capital markets: Uncertainty regarding capital markets reopening, affecting ability to pay unpaid cumulative preferred dividends.
• Unpaid preferred dividends: Over $21 million in unpaid cumulative preferred dividends, with focus on resolving mortgage debt first.

Q: Connor Mitchell asks about the Jacksonville refinancing, renovation, and product improvement plan timeline.

A: Dave Folsom states it's a life cycle repositioning vs Philadelphia's renovation; Scott Kucinski adds it's a complete repositioning, starting around 2025 and completing in early 2027.

Q: Randolph Boyd inquires about outstanding cumulative preferred dividends.

A: Dave Folsom explains over $21 million in unpaid dividends, cautious approach to balance sheet due to mortgage debt and capital markets, with focus on resolving mortgage debt first before addressing preferred dividends.