Sotherly Hotels Inc. Q1 FY2025 earnings call

• First quarter results were ahead of internal expectations, driven by strong occupancy growth, especially in urban markets buoyed by special events.
• Highlights of key assets: DoubleTree Resort Hollywood had RevPAR up 11.9%, Hotel Ballast Wilmington outperformed budgeted and prior year results, The Whitehall Houston had RevPAR up 19.4%, DoubleTree Philadelphia Airport had RevPAR up 34.3%.
• Corporate activity: Signed new 10-year franchise agreements in Philadelphia and Jacksonville, with planned PIP renovations having budgets of $11.5 million and $14.6 million respectively.
• Balance sheet: As of March 31, 2025, total cash was approximately $32.8 million, outstanding debt principal balances were approximately $317.6 million at a weighted average interest rate of 5.88%, and routine capital expenditures were expected to be approximately $7.2 million for 2025, with $11.4 million related to two PIP projects.

For the first quarter, actual portfolio RevPAR increased 6.4% compared to 2024, driven by a 6.4% increase in occupancy with ADR flat to prior year. Stripping out Tampa, the first quarter's actual portfolio RevPAR increased 7.3% compared to prior year, driven by a 7.5% increase in occupancy. Hotel EBITDA across the entire portfolio increased 4.5% over prior year, but excluding the one-time $550,000 COVID-related grants received in Savannah in Q1 2024, hotel EBITDA increased 9.4% over prior year, translating to a 100 basis point increase in hotel EBITDA margins. Specific hotels: DoubleTree Resort in Hollywood, Florida had RevPAR up 11.9%; Hotel Ballast in Wilmington had RevPAR growth of 6.5% year-over-year; The Whitehall in Houston had first quarter RevPAR increasing 19.4% year-over-year; DoubleTree Philadelphia Airport had RevPAR up 34.3%, driven by a 38.7% increase in occupancy.

• Reiterating full year 2025 guidance: Total revenue projected in the range of $183.4 million to $188.2 million (midpoint 2.1% increase over prior year). Hotel EBITDA projected in the range of $48.8 million to $49.6 million (midpoint 5.2% increase over prior year). Adjusted FFO projected in the range of $11.5 million to $12.3 million or $0.57 to $0.61 a share (midpoint 16.4% decrease compared to prior year).

• Macro-economic uncertainty impacting lodging industry near-term visibility, including consumer sentiment weakening leading to increased price sensitivity and compressed booking windows among transient guests.
• Pullback in government segment demand, particularly in the Washington, D.C. submarket.
• Pause in group lead conversions in late March and into April, guiding a more cautious view on operating fundamentals for the back half of the year.

Q: Hey, good morning down there. If I think I heard you correctly, you guys are renovating the Philly hotel, which is -- it's great, definitely in need of some updates, but certainly a great hotel. So, a few things, and forgive my list. Just going down, one, reverse split timing. Last quarter, you guys mentioned a drop dead date of August 11. Is it your intent to go up until that date or you may do something sooner?

A: We'll probably do it close to that date or relatively sooner. We're working on it now. It's a little more complicated than just reverse splitting the stock or CUSIPs and other legal documentation that has to be done and Board resolution. So, we'll get all that done here in the next 60 days, and we'll execute a reverse split I think probably in July or August up to the point where it's due.

Q: You mentioned business interruption insurance for Alba. What's the delta between what you're actually booking in actual revenue from Alba versus what the insurance is covering? Just trying to figure out, is insurance -- is the hotel currently like half of what it should be and insurance is picking up the other half? Or just trying to get some metrics on that?

A: You're talking about from a revenue perspective or a profitability perspective? So, we're seeing a decrease in room revenue as we have fewer guests, but the room profitability is made up on a net basis. And so, we're seeing the bottom-line or the hotel EBITDA pretty much made whole. I mean that's a debate with our insurance carriers as to whether we're -- they think we're 100% whole, we think we're 95% whole, but it's pretty much made whole. But it's the top-line room revenue that suffers there when you try to do your comparability metrics from quarter-to-quarter.

Q: You have Hollywood and Alba loans coming due this year versus where the rates are now and the proceeds. How do you see the refinancing shaping up? Do you see similar proceeds change in rate? Just trying to get some perspective.

A: Yeah. It's actually Atlanta and Hollywood, not Tampa and Hollywood. And both of those are CMBS deals. We're actually working on that every day, looking at different options. The Atlanta maturity date is coming soon. Hollywood is in the third quarter to early October. Right now, I think the most likely outcome is what is being seen throughout the CMBS universe, which is extensions and modifications. That seems to be the norm right now for near-term maturities. Rates are higher, underwriting standards are tighter, DSCR coverages are higher. All that means is you get less proceeds when they underwrite an asset. And if you have the capital to make that up, you can. If not, then most borrowers are simply looking for one- to two-year extensions. There's usually a view from the special servicers to increase interest rates. Maybe interest only, maybe amortizing, that's sort of a negotiating tactic. And then, you have special servicing fees, which amount to maybe 0.25 point of the outstanding balance. So, I think our preference right now, which seems to be with the way we're headed on those loans, is to extend them out, which seems to be consistent with the rest of the market.

Q: So, I mean, if we just look at your cash, you have $11.5 million of unrestricted cash. You mentioned $7 million of CapEx that you're planning to spend this year, and then there's whatever capital or increased interest expense that's going to be needed as part of refinancing, whether it's extension, modification or whatever. So, how are you thinking about the cash that you have on hand versus the needs between the refinancing activity and the CapEx?

A: Well, we have to see what the results are on these extensions. At the same time, we have other assets in the portfolio that have significant equity built into them, namely Savannah and Wilmington. And that financeable equity is probably in the $20 million to $30 million range. And we can refinance those assets conventionally right now early and we can draw a lot of cash out of those refinancings to buttress any cash impact that we would have in the refinancing or extensions of our hotels in Atlanta and Hollywood.

Q: And which hotels have that $20 million to $30 million of excess?

A: Savannah and Wilmington.

Q: And then just finally, can you just remind us the accrued balance on the preferred dividends? What is still unpaid?

A: Sure. It's about $21.9 million, about $2 million...

Q: Okay. $21.9 million...

A: Yeah, we're 11 quarters behind.

Q: Okay. But you are making current payments, right?

A: Yes.