Sotherly Hotels Inc. Q1 2023 Earnings Call
Speaker 1: Hello and welcome to the Southerly Hotels first quarter 2023 earnings call and webcast. My name is Alex, I'll be co-ordinating from the call today. If you'd like to ask a question at the end of the presentation, you can press star one on your telephone keypad. If you'd like to withdraw your question, you may press star two.
Speaker 1: I'll now hand over to your host, Max Simms, Vice President of Operations. Please go ahead.
Speaker 1: to your host, Max Simms, Vice President of Operations. Please go ahead. Thank you and good morning everyone.
Speaker 2: 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.
Speaker 2: 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.
Speaker 2: Factors and risks that can cause actual results that 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.
Speaker 3: Thanks, Mack. Good morning, everyone. I'll start off today's call with a review of our portfolio's key operating metrics for the quarter.
Speaker 3: Looking at the first quarter results for the same store composite portfolio, Revpar was $116.80, driven by an occupancy of 60.5%, and an ADR of $193.03. This quarter, Revpar performance represents an increase of 16.3%.
Speaker 3: over the same period in 2022 driven by a 10.8% increase in occupancy and a 5.6% increase in rate.
Speaker 3: Overall, we are pleased with our portfolio's first quarter results as we continue to transition to a more normalized mix of group, corporate, and leisure demand. During the first quarter, REVpar was off by 8.7% compared to the first quarter 2019, although 2019 was a difficult comp that included the Super Bowl in Atlanta.
Speaker 3: Even with this one-time event, rates outpaced 2019 by 7.5% during the quarter.
Speaker 3: Stripping out Atlanta in the comparison, the remaining portfolios revpar performance returned to 2019 levels, a notable milestone in the post-pandemic recovery. Our portfolios recent booking trends for business and group travel demonstrate that demand from these segments continues to grow. For the group segment, our portfolio produced 58% more group business.
Speaker 3: properties in Washington DC and Houston which posted the best year-over-year improvements in revpar performance for our portfolio at ninety six and a half percent and 51.3 percent respectively.
Speaker 3: Notably, the high centric in Arlington exceeded pre-pandemic levels of business travel revenue for the first time during the first quarter, capping off a remarkable recovery for the property.
Speaker 3: While this property is now fully recovered, we continue to have plenty of opportunities in other urban markets like Houston, Philadelphia, and Atlanta, which continue their road to recovery.
Speaker 3: Overall, we expect our urban markets to continue to improve as return to office rates, business travel, and international travel demand increase, which should help close the gap to pre-pandemic occupancy for those hotels.
Speaker 3: Our portfolios overall leisure demand continued to perform well during the first quarter despite a slight moderation in demand for the South Florida market.
Speaker 3: Our portfolios leisure demand growth is primarily driven by strong results at our leisure focus coastal destinations such as Savannah, Tampa and Wilmington. And was bolstered by approved leisure demand in our urban locations.
Speaker 3: During the first quarter, our hotels benefit from a number of citywide events, which have finally returned to pre-pandemic attendance levels. For example, the NCAA men's final 4 in Houston and the Cherry Blossom Festival in Washington, D. C. boosted these results of our hotels and those markets during the quarter.
Speaker 3: Looking ahead, we continue to see encouraging booking trends with strong rates of the leisure segment.
Speaker 3: Looking at some highlights across the portfolio, the high-eccentric Arlington posted another solid quarter performance showing steady sequential improvement relative to 2019 fueled by the improvement in group and business demand. This property reached an important milestone during the first quarter exceeding pre-pandemic revpar for the first time.
Speaker 3: Outpacing Q1 2019 revpar by 5.6%. Rate which was up 9.7% compared to the first quarter of 2019 was the driver of this improvement.
Speaker 3: The property continues to outperform its competitive set and during the quarter the hotel achieved a revpar index of over 122 percent gaining 10.6 percent revpar share.
The Double Tree Jacksonville Riverfront recorded excellent results during the quarter, exceeding prior year revpar by nearly 20%, fueled by a 10.1% improvement in occupancy and an 8.3% increase in rate.
Results were driven by significant improvements in the corporate group and transient business traveler segments, which hovered near pre-pandemic levels during the quarter.
The hotel outperformance dependent set during the quarter posting a red bar index of 113 percent
The DeSoto Savannah continues to be a standout performer for our portfolio, executing a strategy of a well-balanced mix of leisure and group business.
During the quarter, the property easily outpaced 2019 metrics with an 18.7 percent gain in REV-VAR, fueled by significant rate growth of 17.6 percent.
Occupancy continues to ramp up this property, providing a significant opportunity moving forward. Our management team achieved commendable profitability metrics during the first quarter by controlling variable costs and executing revenue management strategies aimed at driving higher rates. Hotel EBITDA margins for the first quarter of 2023 were flat to 2019. However, stripping out Atlanta due to the Super Bowl in 2019, our portfolio's Hotel EBITDA margin expanded 550 basis points during the first quarter. We are pleased with these metrics, especially considering increased expense pressures from re-staffing our hotels.
2022. Comparing current performance to pre-pandemic levels, total revenue for the first quarter represented 91.8% of total revenue for the same period 2019. Hotel Iba for the quarter was approximately 12.1 million dollars representing an increase of 21.1%.
over the same quarter 2022. Comparing first quarter performance to pre-pandemic levels, Hotel Iberda represented 91.7% of Hotel Iberda for the same period 2019. For the quarter, adjusted FFO was approximately $4.7 million.
Representing an increase of 3.4M dollars of the same quarter 2022. Comparing 1st quarter performance to brief pandemic levels. Adjusted FFO represented 94.2% 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, general, and administrative expenses, the current portion of our income tax provision, and other items as well.
Please refer to our earnings release for additional detail. We're looking at our error
As of March 31, 2023, the company had total cash of approximately $32 million, consisting of unrestricted cash and cash equivalents of approximately $23.4 million, as well as approximately $8.6 million, which was reserved for real estate taxes, capital improvements, and certain other items. The company also had a total cash of approximately $3.5 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 322.1 million dollars, and outstanding debt at a weighted average interest rate of 5.03%. Approximately 96% of the company's debt carried a fixed rate of interest after taking into account the company's interest rate swap agreements.
In addition to the announcement made during the first quarter on the loan modification for our Houston hotel, last week we announced the refinance of the mortgage on the DoubleTree by Hilton Hotel in Laurel, Maryland with City real estate funding.
The interest only loan, which has a principal balance of $10 million, matures in May 2028 and maintains a fixed interest rate of 7.35%.
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 be in the amount of approximately $7.3 million for calendar year 2023.
We are resuming guidance with a forecast of anticipated results for the second quarter.
Our guidance considers market conditions and accounts for current and expected performance within the portfolio.
We're projecting total revenue in the range of 48.9 to 51.3 million dollars for the 2nd quarter 2023. At the midpoint of the range, this represents the 6.2% increase in total revenue. And the same period a year ago, hotel even is projected in the range of 15.6 million dollars to 16.4 million dollars.
from 40 to 44 cents per share. At the midpoint of the range, this represents a 31% increase over adjusted FFO in the same period last year. And I'll now turn the call over to Dave. Thank you, Tony. Overall, our portfolio continued to perform well during the first quarter and results were in line with our expectations. As sustained strength and leisure demand was coupled with accelerating demand from the group and-
during the first quarter. Rate growth continues to be strong across the portfolio, particularly in our leisure heavy markets such as Savannah, Wilmington, and Tampa. Thus far this momentum and lodging fundamentals, which highlights a more normalized mix of business at our hotels, has been carried forward into the second quarter.
Our ability to drive strong rates across the portfolio continues to be an important factor in both red part growth and overall profitability. During the first quarter, the majority of our markets recorded significant rate growth over pre-pandemic levels, leading to excellent profitability metrics for our portfolio.
Adjusted FFO, for example, finished at the high end of our guidance range. We were able to achieve these metrics despite higher costs associated with re-staffing and re-opening amenities at our hotels. In general, staffing at our fully recovered properties is hovering near pre-pandemic levels, while a few of our slower to recover urban properties are still staffed significantly lower.
We have steadily been able to decrease the number of costly contract labor employees and fill those positions with full-time employees at our hotels, leading to overall improvement in our service levels and cost structure.
As Tony mentioned, we recently announced the refinance of our DoubleTree hotel located in Laurel, Maryland. We are pleased with that outcome, which allowed us to realize significant value created through the execution of a streamlined operating strategy. We view the favorable loan terms, which include payments nearly identical to the previous loan, as well as considerable cash proceeds.
approximately 2.7 million as a positive for the company, particularly in light of the challenging lending environment.
Previously, we announced the reinstatement of quarterly dividend payments for our preferred shareholders.
This event represented a major milestone in the recovery of our operations. Additionally, reducing the amount of cumulative unpaid preferred dividends remains a top strategic priority for the company.
Despite the uncertainties in the economy surrounding the banking crisis and a potential recession, we have not yet observed any material change in demand, although some of our markets have yet to fully recover to pre-pandemic levels. Our portfolio's outlook remains in line with our expectations from the beginning of the year, with 2023's group revenue pacing nearly 35% ahead of last year.
with second quarter revpar forecasted to range between 97 and 101 percent of similar quarter revpar in 2019.
We remain cautiously optimistic that these encouraging booking trends, as well as the tailwinds such as low supply growth and improved international travel, will continue to fuel our growth prospects moving forward. And with that operator we can open the call up for questions.
Thank you. As a reminder, if you'd like to ask a question, you can press start followed by one on your telephone keypad. If you'd like to withdraw your question, you may press start followed by two. Please ensure you're unmuted locally when asking your question.
As a reminder, to ask a question you can press Start followed by 1 on your telephone keypad.
Our first question for today comes from Matt McDonald, who is a private investor. Matt, your line is now open. Please go ahead.
Looks like a good quarter.
How are you guys thinking about assets, either just positions or acquisitions?
kind of what are you seeing in the broader landscape for future transactions.
We disposed of a couple of assets in the past, the near past, which you're probably aware of. Our hotel in Raleigh in Louisville, so we don't have any immediate plans for any dispositions.
We obviously look all the time at acquisition opportunities and we think that those opportunities might accelerate.
How we fund those how we finance those is really a function of the capital markets and our ability to attract capital But to your point, I think there are going to be opportunities and we obviously have a bias to grow the asset base of the company
What.
Thank you. As a reminder, if you'd like to ask a question, you can press start followed by 1 on your telephone keypad.
At this time we currently have no further questions so I'll hand back to Dave Folsom, CFO , for any further remarks.
Well thank you everyone for joining us on the call and we look forward to speaking with you again on our next quarterly review. Thank you very much. Thank you for joining us on the call. You may now disconnect your lines.
Thank you.