Q2 2024 Sotherly Hotels Inc Earnings Call

Alexander Goldfarb, David Folsom,

Carly: Good morning all, and thank you for joining us for the Sotherly Hotels Q2 2024 conference call and webcast. My name is Carly, and I'll be coordinating your call today. During the presentation, you can register a question by pressing a star followed by one on your telephone keypad, and to move yourself down that line of questioning, it's a star followed by two. I'll now hand over to Max Sims, Vice President of Operations, to begin. Please go ahead.

Alexander Goldfarb, David Folsom,

Carly: Good morning all and thank you for joining us for the Southerly Hotels Q2 2024 conference call and webcast. My name is Carly and I'll be coordinating your call today. During the presentation you can register a question by pressing star followed by one on your telephone keypad and to move yourself in that line of questioning it's star followed by two. I'll now hand over to Max Sims, Vice President of Operations, to begin. Please go ahead.

Max Sims: 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 Southerly Hotels dot 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 required. Furthermore, 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.

Max Sims: 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 southerlyhotels.com.

Speaker Change: 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 Change: 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,

Max Sims: Factors and risks that can cause actual results to differ materially from those expressed or implied by today's 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.

Speaker Change: We can give no assurance that these expectations will be attained.

Scott: Factors and risks that can cause actual results to differ materially from those expressed or implied by today's 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.

Scott Kucinski: With that, I'll turn the call over to Scott. Thanks, Mac. Good morning, everyone.

Scott Kucinski: I'll start off today's call with a review of our portfolio's key operating metrics for the second quarter. Looking at the second quarter results for the composite portfolio compared to 2023, REVFAR increased 4.3%, driven by a 5.8% increase in occupancy and a 1.4% decrease in ADR. Looking at the second quarter results of the composite portfolio relative to 2019, REVFAR increased 7.5%, driven by ADR growth of 11.7%, while occupancy declined 3.8%. Year-to-date RevPAR performance represents an increase of 4.1% over the same period in 2023, driven by a 6.6% increase in occupancy and a 2.3% decrease in rate. Looking at the year-to-date results for the composite portfolio relative to 2019, REVPAR was up four and a half percent driven by ADR growth of 10 and a half percent and an occupancy decline of 5.3%.

Scott: Thanks, Mack. Good morning, everyone.

Scott: I'll start off today's call with a review of our portfolio's key operating metrics for the second quarter. Looking at the second quarter results for the composite portfolio compared to 2023, REFR increased 4.3 percent, driven by a 5.8 percent increase in occupancy and a 1.4 percent decrease in ADR.

Scott: Looking at the second quarter results of the composite portfolio relative to 2019, REVFAR increased 7.5%, driven by ADR growth of 11.7%, while occupancy declined 3.8%.

Scott: Year-to-date REVPAR performance represents an increase of 4.1% over the same period in 2023, driven by a 6.6% increase in occupancy and a 2.3% decrease in rate.

Scott: Looking at the year-to-date results for the composite portfolio relative to 2019, REF PAR was up four and a half percent, driven by ADR growth of ten and a half percent, and an occupancy decline of 5.3 percent.

Scott Kucinski: This occupancy gap to pre-pandemic levels reflects the additional upside for the point. Overall, our portfolio's second-quarter results, characterized by strong occupancy growth, were in line with our expectations. The continued occupancy growth signals lodging fundamentals for our portfolio have normalized with a more well-balanced revenue. While the quarter's notable occupancy gains were partially offset by a 1.4% decline in ADRs, this decline in rate was isolated to our South Florida, Atlanta, and Houston properties, where travelers showed increased price incentives.

Scott: This occupancy gap to pre-pandemic levels reflects the additional upside for the portfolio moving forward.

Scott: Overall our portfolio second quarter results characterized by strong occupancy growth were in line with our expectations. The continued occupancy growth signals lodging fundamentals for our portfolio have normalized with a more well-balanced revenue picture.

Scott: While the quarter's notable occupancy gains were partially offset by a 1.4% decline in ADR, this decline in rate was isolated to our South Florida, Atlanta, and Houston properties, where travelers showed increased price sensitivity.

Scott Kucinski: We're getting some highlights across the portfolio. Soto and Savannah, Georgia, continues to be a standout performer for Portfolio, growing RevFar 6.8% over the prior year and more than 33% over 2019. The DeSoto's well-balanced mix of group and leisure business helped it outperform its competitive set, gaining 440 basis points in fair share during the quarter.

Scott: Looking at some highlights across the portfolio.

Scott: DeSoto and Savannah, Georgia continues to be a standout performer for our portfolio growing REVPAR 6.8% over prior year and more than 33% over 2019

Scott: The DeSoto's well-balanced mix of group and leisure business helped it outperform its competitive set, gaining 440 basis points in fair share during the quarter. The hotel was able to easily outperform its budgeted profitability metrics for the quarter due to well-managed expense controls and profitable catering revenue.

Scott Kucinski: The hotel was able to easily outperform its budgeted profitability metrics for the quarter due to well-managed expense controls and profitable catering revenue. Hotel Alba in Tampa achieved commendable results in the quarter, growing rev far by 7.8% over the prior year and nearly 63% over 2009. The property was able to gain a significant rev-far share of nearly 800 basis points over its competitive set during the quarter.

Scott: Hotel Alba in Tampa posted commendable results during the quarter growing REVFAR by 7.8% over prior year and nearly 63% over 2019.

Scott: The property was able to gain significant REVCAR share of nearly 800 basis points over its competitive set during the quarter.

Scott Kucinski: While the Tampa market appears to be softening a bit from a rate perspective, Hotel Alba's mix of leisure, business travel, and contract business led to excellent top and bottom line results for the hotel during the quarter. The breakthrough in performance during Q1 at our urban locations continued during the second quarter. The Georgian Terrace in Atlanta grew REVPAR by 8.5% despite a 7.1% decrease in rate. The Klein and Raid are predominantly attributed to the more robust citywide calendar last year, which included multiple magnetism Swiss concerts.

Scott: While the Tampa market appears to be softening a bit from a rate perspective, Hotel Alba's mix of leisure, business travel, and contract business led to excellent top and bottom line results for the hotel during the quarter.

Scott: The breakthrough in performance during Q1 at our urban locations continued during the second quarter. The Georgian Terrace in Atlanta grew REVPAR by 8.5% despite a 7.1% decrease in rate.

Scott: The decline in rate is predominantly attributed to a more robust citywide calendar last year, which included multiple nights of Taylor Swift concerts.

Scott Kucinski: The Hotels' strong occupancy growth of 16.9% during the quarter was driven by increased corporate association business at the hotel. A lot of potential for recovering the film industry business segment presents additional growth prospects. The White Hall in Houston, fueled by strong occupancy growth of 18.4 percent, grew REVPAR by 9.4 percent over the prior year.

Scott: The hotel's strong occupancy growth of 16.9% during the quarter was driven by increased corporate and association business at the hotel. While the potential for recovery in the film industry business segment presents additional growth prospects moving forward.

Scott: The White Hall in Houston, fueled by strong occupancy growth of 18.4 percent.

Scott Kucinski: The White Hall's occupancy improvement was predominantly driven by growth in the transient business segment, with increased demand from the adjacent Chevron headquarters building due to its recent relocation from California, an encouraging sign for the property's growth prospects moving forward. Whitehall Outperformance Competitive Set during the quarter, gaining 620 basis points in REVPAR shares. Looking at profitability metrics for the portfolio, hotel EBITDA margins have stabilized, with the second quarter hotel EBITDA margin improving 69 basis points over the prior year on a clean comparative, despite a slight decline in rates for. The increased occupancy rate in our hotels during the quarter allowed our management teams to take advantage of economies of scale and drive additional high-margin non-group revenue in order to improve flow through.

Scott: grew Revpart by 9.4% over the prior year.

Scott: The Whitehall's occupancy improvement was predominantly driven by growth in the transient business segment, with increased demand from the adjacent Chevron headquarters building due to its recent relocation from California, an encouraging sign for the property's growth prospects moving forward.

Scott: This is Whitehall Outperformance Competitive Set during the quarter, gaining 620 basis points in REV-PAR share.

Scott: Looking at profitability metrics for the portfolio.

Scott: hotel EBITDA margins have stabilized with second quarter hotel EBITDA margin improving 69 basis points over prior year on a clean comparative

Scott: The increased occupancy rate in our hotels during the quarter allowed our management teams to take advantage of economies of scale and drive additional high-margin, non-room revenue in order to improve flow-through.

Scott Kucinski: With fully open and staffed amenity offerings at our hotels, along with the stabilization of wage costs, we expect margins to remain relatively stable going forward. Touring to Corbord Activity, In July, we announced that the company executed a secure loan on the Double-tree by Hilton Jacksonville Riverfront Hotel in Jacksonville, Florida.

Scott: With fully open and staffed amenity offerings at our hotels, along with the stabilization of wage costs, we expect margins to remain relatively stable going forward.

Scott Kucinski: The loan, which carries a floating interest rate based on Sofer plus 3%, has an initial principal balance of $26.25 million with an additional $0.5 million available to fund a product improvement plan at the hotel. [inaudible] The company also announced that it entered into a new 10-year franchise agreement with Hilton Worldwide to re-wisons our Jacksonville Hotels, a soft branded double tree by Hilton under the name of Hotel Bellamy As part of its relaunch efforts for the hotel, the company will undertake a complete renovation of the property at a cost of approximately $14.6 million and an estimated completion date of January 2027.

Speaker Change: Turning to corporate activity.

Speaker Change: In July, we announced that the company executed a secured loan on the DoubleTree by Hilton Jacksonville Riverfront Hotel in Jacksonville, Florida.

Speaker Change: The loan, which carries a floating interest rate based on SOFR plus 3%, has an initial principal balance of $26.25 million, with an additional $9.5 million available to fund a product improvement plan at the hotel.

Speaker Change: The company also announced that it entered into a new 10-year franchise agreement with Hilton Worldwide to re-license our Jacksonville hotel It's a soft branded double tree by Hilton under the name Hotel Bellamy

Speaker Change: As part of its relaunch efforts for the hotel, the company will undertake a complete renovation of the property with a cost of approximately $14.6 million.

Scott Kucinski: Renovation plans for the property will include a complete transformation of its guest rooms, public spaces, building exterior, pool, and sun deck, existing food and beverage offerings, as well as the addition of a new riverfront dining condo. Also, during the second quarter, we announced the company executed an extension on its first mortgage loan for the Double Tree Philadelphia Airport Hotel. The interest-only loan, which has been reduced by $3 million to $35.9 million, matures in April of 2026 and carries a floating interest rate based on so-for-plus-three-and-a-half percent. That's part of the deal.

Speaker Change: and an estimated completion date of January 2027. Renovation plans for the property will include a complete transformation of its guest rooms, public spaces, building exterior, pool and sun deck, existing food and beverage offerings, as well as the addition of a new riverfront dining concept.

Speaker Change: Also, during the second quarter, we announced the company executed an extension on its first mortgage loan for 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 percent.

Speaker Change: As part of the transaction, we purchased an interest rate cap, capping SOFR for a portion of a loan at 3%.

Tony Domalski: We purchased an interest rate cap, capping SOFR for a portion of a loan at 3%. In addition, we announced that the company had entered into a new 10-year franchise agreement with Hilton Worldwide to re-license 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 a cost of approximately $11.5 million and an estimated completion date of April of 2026. Innovation Plans for the property will include upgrades to guest rooms, public spaces, food and beverage offerings, and the building's exterior. Now, I'll turn the call over to Tony.

Speaker Change: In addition, we announced that the company has entered into a new 10-year franchise agreement with Hilton Worldwide to re-license the hotel under the DoubleTree by Hilton flag.

Speaker Change: As part of the new agreement with Hilton, the company will undertake a renovation of the property with a cost of approximately $11.5 million and an estimated completion date of April of 2026.

Speaker Change: Renovation plans for the property will include upgrades to guest rooms, public spaces, food and beverage offerings, and the building's exterior.

Tony Domalski: Thank you Scott. Reviewing Performance for the Period Ended June 30, 2024 For the second quarter, total revenue was approximately $50.7 million, representing an increase of 3.4% over the same quarter in the prior period. Year-to-date total revenue was approximately $97.2 million, representing a 5.1% increase over the same period last year. So tell me, but revenue for the quarter was approximately $15.7 million, representing an increase of 5.8% over the same quarter in 2023. Year-to-date hotel revenue was approximately $28.1 million, representing an increase of 4.2% over the same period last year.

Speaker Change: I will now turn the call over to Tony.

Tony: Thank you, Scott.

Speaker Change: Reviewing performance for the period ended June 30, 2024. For the second quarter, total revenue was approximately $50.7 million, representing an increase of 3.4% over the same quarter in the prior period.

Tony: Year to date, total revenue was approximately $97.2 million, representing a 5.1% increase over the same period last year.

Tony: Hotel Libre for the quarter was approximately $15.7 million, representing an increase of 5.8% over the same quarter of 2023. Year-to-date Hotel Libre was approximately $28.1 million, representing an increase of 4.2% over the same period last year.

Tony Domalski: For the quarter, adjusted FFO was approximately seven and a half million dollars, representing an increase of 6.8% over the same quarter last year. And year to date adjusted FFO was approximately 12.7 million dollars, representing an increase of eight and a half percent over the same period last 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.

Tony: For the quarter, adjusted FFO was approximately $7.5 million, representing an increase of 6.8% over the same quarter of 2023, and year-to-date adjusted FFO was approximately $12.7 million, representing an increase of 8.5% over the same period last year.

Tony: 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.

Tony Domalski: Hotel Libre that excludes these charges, as well as interest expense, interest income, corporate general and administrative expenses, realized gains and losses on derivative instruments, the current portion of our income tax provision, and other items as well. Please refer to our earnings release for this little detail. Looking at our balance sheet as of June 30th, 2024, the company had total cash of approximately $37.3 million, consisting of unrestricted cash and cash equivalents of approximately $18.9 million as well as approximately $18.4 million which was reserved for real estate taxes, insurance, capital improvements, and certain other items. At the end of the quarter, we had principal balances of approximately $323.2 million in outstanding debt at a weighted average interest rate of 5.68%.

Tony: Hotel Evita excludes these charges as well as interest expense, interest income, corporate general and administrative expenses, realized gains and losses on derivative instruments, the current portion of our income tax provision, and other items as well.

Tony: Please refer to our earnings release for additional detail.

Tony: Looking at our balance sheet as of June 30, 2024, the company had total cash of approximately $37.3 million, consisting of unrestricted cash and cash equivalents of approximately $18.9 million.

Tony: as well as approximately $18.4 million which was reserved for real estate taxes, insurance, capital improvements, and certain other items.

Tony: At the end of the quarter, we had principal balances of approximately $323.2 million in outstanding debt at a weighted average interest rate of 5.68 percent.

Tony Domalski: Approximately 92.6% of the company's debt carried a fixed rate of interest when taking into account the company's interest rate hedges. We anticipate routine capital expenditures for the replacement and refurbishment of furniture, fixtures, and equipment will amount to $7 million per calendar year in 2024. As previously announced, we anticipate beginning a product improvement plan at the Doubletree Hilton Philadelphia Airport later this year, with anticipated capital expenditures related to this project to total approximately $3 million for the year.

Tony: Approximately 92.6% of the company's debt carried a fixed rate of interest when taking into account the company's interest rate hedges.

Tony: We anticipate routine capital expenditures for the replacement and refurbishment of furniture, fixtures, and equipment will amount to $7 million per calendar year 2024. As previously announced, we anticipate beginning a product improvement plan at the Doubletree-Hilton.

Tony: Philadelphia Airport later this year. With anticipated capital expenditures related to this project, the total approximately $3 million for the year.

Dave Folsom: 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 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 to $46.9 million, and at the midpoint of this guidance, it represents a 3.8% increase over the prior year.

Tony: We are reiterating guidance with a forecast of anticipated results for the full year previously disclosed in March.

Tony: Our guidance considers market conditions and accounts for current and expected performance within the portfolio.

Tony: We're projecting total revenue in the range of $179 to $182.6 million for the full year 2024.

Tony: At the midpoint of this guidance, this represents a 4% increase over prior year.

Tony: Hotel Libre is projected in the range of $46.1 to $46.9 million and at the midpoint of this guidance it represents a 3.8% increase over prior year.

Tony: and adjusted FFO is projected in the range of 12.8 to 13.8 million dollars or 64 to 69 cents a share.

Tony: At the midpoint of the guidance, this represents an 8.7% decrease over prior year. And I will now turn the call over to Dave. Thank you, Tony, and good morning, everyone. We were generally pleased with our portfolio's results for the second quarter, which were in line with our top and bottom line expectations.

Dave Folsom: And adjusted FFO is projected in the range of $12.8 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. And I will now turn the call over to Dave. Thank you, Tony, and good morning, everyone.

Dave Folsom: We were generally pleased with our portfolio's results for the second quarter, which were in line with our top and bottom line expectations. Our portfolio's REVPAR growth of 4.3% over the prior year was driven by strong occupancy growth, especially at our slower-to-recover urban hotels in Atlanta and Houston, which continue to stabilize. Our group-centric properties also continue to perform exceptionally well during the quarter, growing group revenue over the prior year while delivering strong transient leisure results.

Dave: Our portfolio's red part growth of 4.3% over prior year was driven by strong occupancy growth.

Dave: especially at our slower-to-recover urban hotels in Atlanta and Houston, which continue to stabilize. Our group-centric properties also continue to perform exceptionally well during the quarter, growing group revenue over prior year while delivering strong transient leisure results.

Dave Folsom: Despite softer than expected leisure demand during the quarter, which led to a slight rate decline for the portfolio, we are optimistic that as we move into the fall travel months, which are traditionally characterized by more group and business travel demand, we will be able to drive better rates. We will be able to drive better rates. We will be able to drive better rates. We will be able to drive better rates. Overall, we were pleased with our manager's ability to achieve solid expense controls and deliver strong flow through, while also competing well amongst our competitive sets during the quarter.

Dave: Despite softer than expected leisure demand during the quarter which led to a slight rate decline for the portfolio, we are optimistic that as we move into the fall travel months that are traditionally characterized by more group and business travel demand, we will be able to drive better rate growth.

Dave: Overall, we were pleased with our manager's ability to achieve solid expense controls and deliver strong flow-through, while also competing well amongst our competitive sets during the quarter.

Dave Folsom: Scott mentioned in his remarks that the recovery we experienced in our urban hotels in Atlanta and Houston to start the year continued during the second quarter. As one of our largest assets by historical EBITDA contribution, the occupancy recovery of nearly 900 basis points over the prior year at the Georgian Terrace in Atlanta was an encouraging sign for our portfolio. The Georgian Terrace's ability to gain 960 basis points in ref-part share year-to-date speaks to the significant progress made by the hotel sales staff over the past 12 months.

Dave: As Scott mentioned in his remarks, the recovery we experienced at our urban hotels in Atlanta and Houston to start the year continued during the second quarter.

Scott: As one of our largest assets by historical EBITDA contribution, the occupancy recovery of nearly 900 basis points over prior year at the Georgian Terrace in Atlanta was an encouraging sign for our portfolio.

Speaker Change: The Georgian Terraces' ability to gain 960 basis points in REVPAR share year-to-date speaks to the significant progress made by the hotel sales staff over the past 12 months.

Dave Folsom: The Whitehall and Houston have a similar story [inaudible] Improving REF PAR share 900 basis points a year to date as our sales team continues to gain traction with citywide groups and business transient travelers. Despite these strong performances, we believe our portfolio is positioned for relative outperformance, given our exposure to slower to recover urban markets, such as Atlanta, Houston, and Philadelphia, which are still tracking below historic occupancy levels. While our double tree hotel at the Philadelphia Airport showed positive signs of demand improvement during the second quarter by growing REF-PAR 7.6%, it is still running 1,250 basis points below second quarter 2009 occupancy 2019 I, providing plenty of upside opportunities.

Speaker Change: The White Hall at Houston has a similar story, improving RevPAR's shared 900 basis points year-to-date as our sales team continues to gain traction with citywide groups and business transient travelers.

Speaker Change: Despite these strong performances, we believe our portfolio is positioned for relative outperformance given our exposure to slower-to-recover urban markets such as Atlanta, Houston, and Philadelphia, which are still tracking below historic occupancy levels.

Speaker Change: Well, our Doubletree Hotel at the Philadelphia Airport showed positive signs.

Speaker Change: of Demand Improvement during the second quarter by growing REVPAR 7.6%.

Speaker Change: 7.6%, it is still running 1,250 basis points below second quarter 2009 occupancy, 2019 occupancy.

Dave Folsom: The Philadelphia market's strong improvement during the second quarter is an encouraging sign for its continued recovery, especially considering the performance of this hotel is highly correlated with market-related factors such as air traffic volume and citywide events. The Philadelphia market's strong improvement during the second quarter is an encouraging sign for its continued recovery, especially considering the first quarter. Group business continued to be an important growth story for our portfolio during the second quarter, with the segment's revenue growing by 3.8% over the prior year. Importantly, the group rate, which outpaced the overall portfolio's ADR, grew 1.8% during the second quarter.

Speaker Change: providing plenty of upside opportunity.

Speaker Change: The Philadelphia market's strong improvement during the second quarter is an encouraging sign for its continued recovery, especially considering the performance of this hotel is highly correlated with market-related factors such as air traffic volume and citywide events.

Dave Folsom: The DeSoto and Savannah continued their remarkable streak with another record-breaking quarter for group business, which grew an impressive 48% with 8% rate growth over the prior year. The Georgian Terrace, meanwhile, delivered 87.6% growth in group revenue over the prior year, a commendable sales effort by our team. Looking at the total portfolio, the group revenue picture remains solid for the balance of the year, with full year bookings pacing 6.4% ahead of last year.

Speaker Change: Group business continued to be an important growth story for our portfolio during the second quarter.

Speaker Change: with the segment's revenue growing by 3.8% over prior year.

Speaker Change: Importantly, group rate, which outpaced the overall portfolio's ADR, grew 1.8 percent during the second quarter.

Speaker Change: The DeSoto and Savannah continued its remarkable streak with another record-breaking quarter for group business.

Speaker Change: which grew an impressive 48% with 8% rate growth over prior year. The Georgian Terrace, meanwhile, delivered 87.6% growth in group revenue over prior year, a commendable sales effort by our team.

Speaker Change: Looking at the total portfolio, the group revenue picture remains solid for the balance of the year, with full year bookings pacing 6.4% ahead of last year.

Dave Folsom: On the balance sheet front, by mid-year, we have successfully addressed nearly $100 million in mortgage refinancings, restructurings, and extensions, while concurrently meeting all our capital and funding needs for lifecycle improvement plans at several of our hotels. Scott mentioned in July that we completed the refinance and relicensing of our Double Tree by Hilton Hotel in Jacksonville, Florida, which given the current lending environment we view as a positive outcome for the company. We believe the hotel's direct riverfront location is perfectly suited to our repositioning strategy that will yield the Jacksonville market's first full-service lifestyle hotel.

Speaker Change: On the balance sheet front, by mid-year, we have successfully addressed nearly $100 million in mortgage refinancings, restructurings, and extensions, while concurrently meeting all our capital and funding needs for lifecycle improvement plans at several of our hotels.

Speaker Change: As Scott mentioned, in July, we completed the refinance and relicense of our DoubleTree by Hilton Hotel in Jacksonville, Florida, which, given the current lending environment, we view as a positive outcome for the company.

Scott: We believe the hotel's direct riverfront location is perfectly suited to our repositioning strategy that will yield the Jacksonville market's first full-service lifestyle hotel.

Dave Folsom: We believe our strategy with its overall goal of driving rates coupled with the strength of the Hilton reservation system will position the hotel for success for the foreseeable future. Looking ahead, we will continue to conservatively approach upcoming debt maturities for our portfolio, which are spread evenly over the next several years. As we look at the second half of 2024, we are cautiously optimistic regarding operating fundamentals for the balance of the year.

Scott: We believe our strategy with its overall goal of driving rate, coupled with the strength of the Hilton Reservation System, will position the hotel for success for the foreseeable future.

Scott: Looking ahead, we will continue to conservatively approach upcoming debt maturities for our portfolio, which are spread evenly over the next several years.

Scott: As we look at the second half of 2024, we are cautiously optimistic regarding operating fundamentals for the balance of the year.

Dave Folsom: Despite leisure customers becoming more price conscious and perhaps a slowing economy, forward booking trends remain relatively strong, particularly for the upscale and upper upscale lodging sector. Urban Hotels are expected to outperform the broader lodging market, driven by positive corporate and group travel.

Scott: Despite leisure customers becoming more price conscious and perhaps a slowing economy, forward booking trends remain relatively strong, particularly for the upscale and upper upscale lodging segments.

Scott: Urban hotels are expected to outperform the broader lodging market driven by positive corporate and group travel trends.

Dave Folsom: Folier 2024 Rev Par for our portfolio is forecasted to range between 104 and 106 percent of Folier 2023 Rev Par. We believe in our portfolio of well-positioned Hotels, which, fuelled by growth trends in the group and business transient segments, will continue to deliver strong results for our shareholders. And with that operator, we can open up the call for questions. Thank you very much.

Scott: Full Year 2024 REVPAR for our portfolio is forecasted to range between 104 and 106 percent of full year 2023 REVPAR. We believe that our portfolio of well-positioned hotels

Scott: Fueled by growth trends in the group and business transient segments, we'll continue to deliver strong results for our shareholders.

Speaker Change: And with that, operator, we can open up the call for questions.

Speaker Change: Thank you very much. If you'd like to ask a question, please press star followed by 1 on your telephone keypad. And if you'd like to remove yourself from that question queue, it's star followed by 2.

Speaker Change: Our first question comes from Connor Mitchell of Piper Sandler. Connor, your line is now open.

Connor Mitchell: Thanks for taking my question. So I guess starting with Jacksonville, the refinancing at the, um, renovation, the product, it proved a plan. It sounds like there's a bit more going on than what you guys talked about with the Philadelphia renovations discussed in the first quarter call. Can you just remind us again that this is more of a repositioning of the Philadelphia Market and then when it's expected to complete the project plan? Yeah, it's Dave here.

Connor Mitchell: Thank you.

Speaker Change: Hey, good morning. Thanks for taking my question. I guess starting with Jacksonville, the refinancing at the...

Speaker Change: The renovation, the product improvement plan, it sounds like it's a bit more going on than what you guys talked about with Philadelphia renovations discussed in the first quarter call.

Speaker Change: Can you just remind us again, this is more of a repositioning to Philadelphia, and then when it's expected to complete the project plan?

Dave Folsom: Thanks for the question. So yeah, it is more detailed than Philadelphia. Philadelphia is simply a renovation to maintain the double tree standards.

Speaker Change: Yeah, it's Dave here. Thanks for the question. So yeah, it is more detailed than Philadelphia. Philadelphia is simply a renovation to maintain the Doubletree standards. This is more of a lifecycle repositioning while we're still in the Hilton reservation system.

Speaker Change: This is a more expansive reposition the hotel

Speaker Change: to really create a new identity for the asset.

Speaker Change: I'll let Scott tell you about the timeline. Yeah, hey, good morning, Connor. Yeah, as Dave said, it is...

Speaker Change: It's complete repositioning and re-envisioning if you look at what we've done in the past with

Scott: Hotel Alba in Tampa or Hotel Ballas in Wilmington.

Scott: You know it's from that cut from that same cloth. You know we really think there's a

Scott: A big market opportunity in Jacksonville. It's a market we've been in since, I think, 1995, and we've seen it continue to evolve. Just a couple tidbits. The Jaguars just announced a multi-billion dollar...

Scott: complete transformation of their stadium right there in downtown. That's definitely gonna be bringing, you know, some larger events, Super Bowls, and that type of thing in the future. There's a lot of development activity without really any of the hotels, except for a Four Seasons that's gonna be built over by the stadium coming to downtown. So we're excited to kind of put some more money into that asset and position it for, you know, some really good growth in the future. So.

Speaker Change: $14.6 million that you know that's a full repositioning, re-envisioning new food and beverage and the timeline for that I think we said in our in our comments it's going to be starting

Speaker Change: Give or take the beginning of next year 2025 and last for two years. We'll wrap it up in early 2027

Connor Mitchell: And then maybe turning towards the consumer and just leisure travel. It sounds like the ADR softened a bit in the back half of the second quarter, and I'm just hoping you guys could go through kind of your outlook. I know you talked about it a bit in your opening remarks.

Speaker Change: Okay, I appreciate that.

Speaker Change: And then maybe turning towards consumer and just leisure travel, it sounds like the ADR softened a bit in

Speaker Change: in the back half of the second quarter.

Speaker Change: and just hoping you guys could go through kind of your outlook. I know you talked about it a bit in your opening remarks. If you think that maybe some leisure and consumer travel will pick back up steady, could follow the same trends.

Dave Folsom: If you think that maybe some leisure and consumer travel will pick back up slowly and could follow the same trends. And then at the same time, we're kind of seeing, Unknown Speaker, a change in the macro environment with a lot of a lot of discussion of potential recession. So along the same lines, just wondering if you guys are thinking of, you know, maybe individuals and leisure travel, potentially cutting back on travel, dining, both, or it might kind of stabilize where it is. Well, I think your assessments are correct. I mean, we did see a trailing off of ADR towards the end of the quarter.

Speaker Change: You know, a change in the macro environment with a lot of

Speaker Change: A lot of discussion of potential recession, so.

Speaker Change: Along the same lines, just wondering if you guys are thinking of, you know, maybe individuals and leisure travel potentially cutting back on travel, dining, both, or it might kind of stabilize where it is.

Dave Folsom: I've looked at a lot of different earnings calls and releases, and I think our industry saw that across the board. And in Florida, where there's a, you know, it's highly correlated to the leisure travel segment, Segment, you know, we saw that at several of our hotels in the last few days, we had a lot of fun. We had a lot of fun. We had a lot of fun. I mean, RAID has been so pronounced over the last few years as we came out of COVID.

Speaker Change: Well, I think your assessment is correct. I mean, we did see a trailing off of ADR towards the end of the quarter.

Speaker Change: I've looked at a lot of different earnings calls and releases and I think our industry saw that across the board and in Florida where there's a, you know, it's highly correlated to the leisure travel.

Speaker Change: segment, you know, we saw that at several of our hotels.

Speaker Change: I mean, RAID has been so pronounced over the last few years as we came out of COVID.

Speaker Change: I think you get to a point where, given economic conditions, you're going to have travelers be a little more rate conscious. I think we're seeing that. But at the same time, we're seeing corporate booking trends and group booking trends sort of take up the slack, as we mentioned in our prepared remarks.

Speaker Change: I'm not seeing anything in the booking environment that would...

Speaker Change: correlate to some sort of recessionary event that's looming out on the horizon. It doesn't mean it won't happen, but

Speaker Change: We're not seeing that as of this call, so.

Speaker Change: how we react to that. It's how we react to all recessions or down market conditions. We manage our flow, we manage our expenses, and we try to extract the highest quality revenue we can amongst all the different segments that come to our hotels.

Speaker Change: Yeah, and Connor, I'll just add to what Dave said, I mean, the rate sensitivity really is coming.

Connor Mitchell: from that individual leisure traveler from what we can tell, and luckily we don't have

Connor Mitchell: a whole lot in our portfolio that is solely reliant on that. South Florida is probably the most true individual leisure travel hotel that we have, the DoubleTree in Hollywood. On the contrary, on the group side of things, the booking base is great and the rate is very strong. We're seeing very strong rates out of our group bookings, so it's not really a rate sensitivity across the board. It's really just from that one segment.

Scott Kucinski: The main metric you guys are really focused on because it seems that occupancy has continued to steady and improve coming out of the pandemic. It's still slightly below pre-pandemic levels while the ADR has been better than pre-pandemic levels, but it seems like now it's kind of facing some headwinds potentially, so is ADR really the one metric you guys are focused on in terms of your outlook, and you believe that occupancy still has more upside and is not too worried about it slipping as much, or am I getting those confused or maybe putting more emphasis on what are Unknown Speaker No, I think you're looking at the problem correctly.

Speaker Change: OK, and then.

Speaker Change: You know kind of combining the thoughts of occupancy and and changes in the ADR is

Speaker Change: Is sensitivity to pricing in the ADR the main metric you guys are really focused on because it seems that occupancy is

Speaker Change: continued to steady and improve coming out of the pandemic. It's still slightly below pre-pandemic levels, while the ADR has been better than pre-pandemic.

Speaker Change: But it seems like now it's kind of facing some headwinds, potentially. So, is ADR really the one metric you guys are focused on in terms of your outlook? And do you believe that...

Speaker Change: occupancy still has more upside and not too worried about it slipping as much or am I getting those confused or maybe putting more emphasis on one or the other?

Dave Folsom: I mean, there is a lot of room to run with respect to occupancy, not only in our portfolio but industry-wide. The industry hasn't recovered to 2019 occupancy levels yet, and rates have been, Raiders have grown tremendously since the pandemic. I think we may be at a point where it's going to take a breather. I mean, Raiders, you well know. Raiders drives flow through and drives profitability, but at the same time, you know, with the correct rate and increasing occupancy to more historic levels.

Speaker Change: No, I think you're looking at the problem correctly. I mean, there is a lot of room to run with respect to occupancy, not only in our portfolio, but industry-wide. The industry hasn't recovered to 2019 occupancy levels yet.

Speaker Change: rate has been.

Ray: Ray has grown tremendously since the pandemic. I think we may be at a point where it's going to take a breather. I mean, rate, as you well know, I mean, rate is, it drives flow through and drives profitability, but at the same time.

Ray: You know with the correct rate and increasing occupancy to more historic levels. We're still going to be profitable as long as the hotels

Ray: achieve operating efficiencies, which is what we really focus on week to week, month to month, is whether or not our managers are successful in flowing dollars to the bottom line. Obviously, if we could grow rate

Connor Mitchell: So we do think there's an upside to occupancy; we just have to manage it correctly. Okay. Appreciate that, and then maybe just one more quick question on guidance. It looks like you guys have pretty much matched up for FFO from the prior year, and maybe it looks like you're kind of expecting that same timeline. Just wondering if there's anything, any other headwinds you're thinking of that might result towards the bottom end of the range or not.

Ray: forever that'd be fantastic but we know we can't so we do think there's upside on occupancy we just have to manage it correctly.

Ray: Okay.

Speaker Change: Appreciate that and then maybe just one more quick question on guidance it looks like you guys have

Speaker Change: pretty much matched up for FFO from the prior year, and maybe it looks like you're kind of expecting that same timeline. Just wondering if there's anything, any other headwinds you're thinking of that might result towards the bottom end of the range or

Dave Folsom: Maybe some improvements; maybe the ADR, like we were just talking about, might reach the high end or above the high end. And then if there's any one high mind, I'm in the back half of 23 that we might be forgetting we shouldn't be expected to carry over into 24. Well, this time of year, we're always concerned about weather-related events. We just got through one hurricane, which did not really cause any impact on the portfolio.

Speaker Change: maybe some improvements, just maybe the ADR like we were just talking about that might reach the high end or above the high end. And then if there's any just one time items in the back half of 23 that we might be forgetting, we shouldn't be expected to carry over into 24.

Dave Folsom: We lost some bookings, but it's not material in the broader picture. So this time of year, given the coastal nature and the Florida nature of our portfolio, we're always concerned about updating guidance until we kind of move through the end of September. Anthony, do you have any other items to add to that?

Speaker Change: Well, this time of year we're always concerned about weather-related events.

Speaker Change: We just got through one hurricane which did not really...

Speaker Change: cause any impact to the portfolio. We lost some bookings, but it's not material in the broader picture.

Speaker Change: So, this time of year, given the coastal nature and the Florida nature of our portfolio, we're always concerned about updating guidance until we kind of move through the end of September. And Tony, do you have any other items to add to that?

Tony: No, I think we're, you know, I think if you look,

Tony: You know, if you look at where we are for the first six months and where we think we're going to be at the end of the year, I think we're tracking along a very similar path as we did last year. We make most of our money in the first two quarters of the year.

Tony Domalski: Pretty close to break even on an FFO and adjusted FFO perspective for the third quarter, and then we make some money in the fourth quarter of the year. That's what we've done historically, and that's what we did last year, and we're expecting to do something very similar this year. A big one-time item that I think we had a- Nothing; we're not expecting anything this year. And I think last year, we had a $700,000 grant from the state of Georgia for one of our properties.

Tony: pretty close to break even on an FFO and adjusted FFO perspective for the third quarter, and then we make some money in the fourth quarter of the year. And that's what we've done historically. That's what we did last year, and we're expecting to do something very similar this year.

Tony: Big one-time items, I think we had a...

Speaker Change: Nothing, we're not expecting anything this year. And I think last year we had a $700,000 grant from the state of Georgia at one of our properties. That's the only large item from last year that's not gonna recur this year.

Tony Domalski: That's the only large item from last year that's not going to happen again this year. Okay, thank you very much. Thank you very much. Thank you for your question. Just as a reminder, if you would like to ask a question, it'll be Starfall 1 on your cell phone and keypad, and to move yourself to not lie or question, it's Starfall 2. Our next question comes from Randolph Boyd. Randolph, your line is now open.

Speaker Change: Okay, thank you very much.

Speaker Change: Thanks, John. Thank you very much.

Speaker Change: Thank you for your question. Just as a reminder, if you would like to ask a question, it will be star followed by one on your telephone keypad. To remove yourself from that line of questioning, it's star followed by two.

Speaker Change: Our next question comes from Randolph Boyd. Randolph, your line is now open.

Randolph Boyd: Thank you for taking the call. Would you comment on the outstanding cumulative deferred dividends and what you anticipate eventually bringing them current? Right. Thanks. This is Dave speaking.

Randolph Boyd: Thank you for taking the call. Would you comment on the...

Randolph Boyd: outstanding cumulative deferred dividends and what you anticipate

Randolph Boyd: eventually bringing them current.

Dave Folsom: So we do have over $21 million in unpaid cumulative preferred dividends; we are paying the current price for all of our preferred stock. As I've mentioned on the past few earnings calls, we have to be very judicious and cautious with our balance sheet. Specifically, with respect to the mortgage markets and how they impact our balance sheet and the fact we have several properties facing significant life cycle product improvement plans that are mandated by the major hotel companies like Hilton and assets that we own that also don't have a brand but nonetheless need capital improvement, Those are our biggest concerns right now. I mean, we have a bias to get that paid up and current.

Randolph Boyd: All right. Thank you.

Dave: Thanks. This is Dave speaking. So, we do have over $21 million in unpaid cumulative preferred dividends. We are paying the current pay for all of our preferred stock. As I've mentioned on the past few...

Dave: The past few earnings calls, we have to be very judicious and cautious with our balance sheet.

Dave: specifically with respect to the mortgage markets and how they impact our balance sheet.

Dave: and the fact we have several properties facing significant life-cycle product improvement plans.

Dave: that are mandated by the major hotel companies like Hilton and assets that we own that also don't have a brand that nonetheless need capital improvements.

Dave: Those are our biggest concerns right now. I mean, we have a bias to get that paid up and current, so we can start paying current dividends on the common.

Dave Folsom: So we can start paying current dividends on the common. But right now, we're just being very cautious with respect to our available capital. And until the mortgage markets balance out, stabilize. That's our biggest focus we've addressed. As I said in my prepared remarks, we've addressed about $100 million of mortgage debt so far this year, and over the next two years, we have approximately another $150 million of mortgage debt.

Dave: But right now, we're just being very cautious with respect to our available capital. And until the mortgage markets balance out and stabilize, that's our biggest focus. We've addressed, as I said in my prepared remarks, we've addressed about $100 million.

Operator: If you'd like to ask a question, please press staff full of one on your telephone keypad, and if you'd like to remove yourself from that question cue, it's staff full of by two. Our first question comes from Connor Mitchell on Piper Sandler. Connor, your line is now open. Hey, good morning.

Dave: of Mortgage Debt so far this year and over the next two years we have approximately another $150 million of mortgage debt.

Dave Folsom: Until that's resolved successfully, which I think it will be, I can't give you a date as to when we'll be able to true up the rest of that preferred. It also depends on whether or not the capital market.

Dave: Until that's resolved successfully, which I think it will be, I can't give you a date as to when we'll be able to true up the rest of that preferred. It also depends on whether or not the capital markets...

Dave Folsom: [inaudible] Reopen, and new fresh capital could become available to us. That's something we haven't seen yet, and I'm not sure when the capital markets will reopen. But the law, in the short, to answer your question as I can't give you a timeline is when that will be fully rebated.

Dave: reopen and new fresh capital could become available to us. That's something we haven't seen yet, and I'm not sure when the capital markets will reopen.

Dave: But the long and the short to answer your question is I can't give you a timeline as to when that will be fully rebated.

Operator: Okay, thank you very much. Fantastic. We currently have no further questions, so I'd like to hand back to Dave Folsom, CEO, for closing remarks. Thank you everyone for joining the call, and we'll speak next quarter. This concludes today's call. Thank you to everyone for joining. You may now disconnect your lines, music

Speaker Change: Okay, thank you very much.

Speaker Change: Fantastic.

Speaker Change: We currently have no further questions, so I'd like to hand back to Dave Folsom, CEO, for closing remarks.

Dave Folsom: Thanks everyone for joining the call and we'll speak next quarter.

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

Speaker Change: [inaudible]

Scott Kucinski: This is more of a life cycle repositioning while we're still in the Hilton reservation system. This is a more expansive repositioning of the hotel to really create a new identity for the asset. I'll let Scott tell you about the timeline. Yeah, hey, good morning, Connor.

Scott Kucinski: I think you get to a point where, given economic conditions, you're going to have travelers be a little more rate conscious. I think we're seeing that. But at the same time, we're seeing corporate booking trends and group booking trends sort of take up slack, as we mentioned in our prepared remarks. We're not I'm not seeing anything in the booking environment that would correlate to some sort of recessionary event that's looming out on the rise, and it doesn't mean it won't happen, but we're not seeing that as of this call.

Scott Kucinski: Yeah, Dave said it is. Yeah, it's it's it's it's it's it's it's, to complete repositioning and re-envisioning, if you look at what we've done in the past with Hotel Album and Tampa or Hotel Battles in Wilmington, you know, it's from that, a couple of that same cloth, you know, we really think there's a big market opportunity in Jacksonville to mark we've been in since the 1995, and we've seen it continue to evolve just a couple of tidbits.

Scott Kucinski: So how we react to that is how we react to all recessions or down market conditions. We manage our flow, we manage our expenses, and we try to extract the highest quality revenue we can from all the different segments that come to our hotel. Conor Abdasad to what Dave said. I mean, the rate sensitivity really is coming from that leisure, individual leisure traveler, from what we can tell, and luckily, we don't have a whole lot in our portfolio that is solely reliant on that. South Florida is probably the most true leisure, individual leisure travel hotel that we have; the double treating in Hollywood.

Scott Kucinski: On the contrary, the groups, the groups how things, the booking base is great, and the rates are very strong. We're seeing very strong rates out of our group bookings, so it's not really a rate that tends to be across the board, it's really just from that one day. Okay, and then um... You know, kind of combining the thoughts of occupancy and changes in the ADR is a sensitivity to pricing in the ADR.

Scott Kucinski: The Jaguars just announced a multi-billion dollar complete transformation of their stadium right there in downtown, that's definitely going to be bringing, you know, some larger events, super balls, and that type of thing in the future. There's a lot of development activity without really any of the hotels, except for four seasons that's going to be built over by the stadium coming to downtown, so we're excited to kind of put some more money into that So, it's $14.6 million that, you know, that's a full repositioning, re-envisioning new food and beverage, and the timeline for that, I think we said in our comments, it's going to start, give or take, the beginning of next year, 2025, and last for two years; we'll wrap it up in early 2027. Okay, I appreciate that.

Dave Folsom: Well, we're always concerned about updating guidance until we're always concerned about updating guidance until we're always concerned about updating guidance until we're always concerned about updating guidance. No, I think we're, you know, I think if you look at where we are for the first six months and where we think we're going to be at the end of the year, I think we're tracking along a very similar path as we did last year. We make most of our money in the first two quarters of the year.

Dave Folsom: We're still going to be profitable as long as the hotels achieve operating efficiencies, which is what we really focus on week to week, month to month. It is whether or not our managers are successful in flowing dollars to the bottom line. Obviously, if we could grow rates forever, that'd be fantastic, but we know we can't.