Q4 2024 Sotherly Hotels Inc Earnings Call
Good morning, all and thank you for joining us for the Sotherly Hotels Q42024 conference goal and webcast. My name is Carly and I'll be coordinating the call today. If you like to register a question, you're in the call. You can do so by pressing Starflip by one on your telephone keypad and to remove the server line, the question will be Starflip by two. And I'll turn it over to your host, Max Simms, Vice President of Operations,
Thank you. Good morning, everyone.
If you did not receive a copy of the earnings release, you may access it on our website at tetherlyhotels.com. In the release, the company has reconciled all non-GAAP financial measures to the most directly comparable gap measure in accordance with regular requirements.
Any statements made during this conference call, which are not historical, may constitute four 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 that differ materially from those expressed or implied by forward-looking statements are detailed in today's press release and for the time of time in the company's filings with the SEC.
Speaker Change: Thanks, Mack. Good morning, everyone. I'll start off today's call to review our portfolio's key operating metrics for the fourth quarter.
Speaker Change: Looking at the fourth quarter results for the actual portfolio, compared to 2023, Reffpar increased 2.9% driven by a 7% increase in occupancy and a 3.7% decrease in ADR.
Speaker Change: Stripping out Tampa from the results due to Hurricane Impact, the 4th quarter's actual portfolio rip are increased to healthy 5.8% compared to prior year.
Speaker Change: Looking at the fourth-order results for the actual same-store portfolio relative to 2019, Red Far increased 3.8% driven by ADR growth of 7.9% while occupancy was down 3%.
Speaker Change: For the four year, 2024, RevFar Performance represents an increase of 3.5% over the same period in 2023, driven by a 6.1% increase in occupancy and a 2.5% decrease in rate.
Speaker Change: Again, stripping out Tampa from the results due to hurricane impact, the annual actual portfolio of RIPHAR increased 3.9% compared to 2023 levels.
Speaker Change: Looking at the annual results for the same-store actual portfolio, relative to 2019, Red Far was up 1.3%, driven by ADR growth of 8.6%, and occupancy decline of 6.8%.
Speaker Change: Overall, our portfolio's fourth-core results, driven by strong year-of-year occupancy growth were ahead of our budgeted expectations.
Speaker Change: Ocmancy Growth was especially strong and are slower to recover urban markets, a positive indicator that lodging fundamentals have normalized, falling in the uneven recovery period, falling by the pandemic.
Speaker Change: As part of this normalization of lodging fundamentals, rates have settled down a bit, following the revenge travel trends of the prior two years, with an ADR decline of 2.5%.
Speaker Change: Hurricane Helene was struck during the third quarter, contributed to significant operational impact during the fourth quarter of 2024.
Speaker Change: Due to our operating team's expeditious restoration efforts following the storm, the hotel remained fully operational.
Speaker Change: Today, the work associated with this fully-insured casualty has been efficiently executed and only final FF&E replacements and elevator work are made to be accomplished. We anticipate the impact of operations at Hotel Alba as a result of Hurricane Helene to continue through the second quarter of this year.
Speaker Change: From an accounting perspective, the company's headline quarterly operating metrics, including occupancy, ADR and RevPAR, reflect the impact of Hurricane Helene on Hotel Albus operations prior to business interruption in terms of proceeds.
Speaker Change: While the company's revenue and profitability in the metrics include business interruption and transcripts.
Looking at some highlights across the portfolio.
Speaker Change: The Double Tree Resort in Hollywood, Florida posted a strong year of year results during the quarter and proving rev far by 13.8% fueled by a 13.4% increase in occupancy and a slight increase in rate.
Speaker Change: Hotels Improvement and Occupancy, which led to greater ancillary revenue capture as a result of stronger than expected weekend demand, as well as improved bookings.
Speaker Change: Driven by a 13% increase in occupancy share, the double tree easily outperformed its appendix set during the quarter, growing its red part index by 8.5%.
Speaker Change: The Whitehall and Houston continued to build momentum during the fourth quarter, growing rev par by nearly 50 percent, driven by occupancy growth of 46.1 percent and rate growth of 2.7 percent. The Hotels improved performance, was predominantly driven by growth in the leisure transient segment.
Speaker Change: Art Double Tree Hotel in Philadelphia, continued its streak of improved performance during the fourth quarter, posting a 9.4% increase in red far driven by a 16.2% increase in occupancy.
Speaker Change: The Hotels Submarket continues to trend positively during the quarter, benefiting from increased demand from special events as well as improved airport traffic. Meanwhile, the Hotels' strong occupancy growth, which is driven by increased business and group travel, contributed to a 5.2% rev-far share gain during the fourth quarter.
Speaker Change: Hotel Ballast in Wilmington, posted strong year-of-year results growing red far by 7.1%, which was fueled by 1.9% increase in occupancy and a 5% increase in rate.
Speaker Change: Hotel Ballast, well-balanced approach highlighted by group with strong banquet and catering contribution continues to drive the hotel's revenue picture.
Speaker Change: Looking at profitability metrics for the portfolio, while Hotels EBITDA margin experienced a slight year of a year decline, the prior year included $700,000 grant payment at the George
Speaker Change: Stripping out this one-time event, 4th quarter hotel EBITDA margin improved by 150 basis points of a prior year, a commendable effort considering the portfolios moderate rate decline during the quarter.
Speaker Change: Moving forward, we expect normalized staffing and amendi levels along with stabilized wage costs to result in relatively stable margins for the portfolio.
Speaker Change: Turing to Corporate Activity, the company continues planning and preparation for two upcoming PIP renovations.
Speaker Change: In Philadelphia, we have executed a new 10-year franchise agreement with Hilton for the double tree flag. The acquired PIP renovation has an $11.5 million budget with an expected completion date of May 1, 2026.
Speaker Change: in Jacksonville Company, executed a new 10-year franchise agreement with Hilton to convert the hotel to a soft branded concept under the name Hotel Delamy. This $14.6 million renovation has an expected completion date of January 1st, 2027.
Speaker Change: I will now turn the call over to you. Thank you, Scott. Reviewing performance for the period ended December 31, 2024. With fourth quarter total revenue was approximately $44 million representing an increase of 4.3% over the same quarter of 2023.
Tony: Year-to-date total revenue was approximately $182 million, representing an increase of 4.6% over a full year 2023.
Tony: Hotel EBITDA for the quarter was approximately $10.7 million representing an increase of 3.6% from the same quarter last year. Year to date, hotel EBITDA was approximately $46.8 million representing an increase of 4.5% over full year 2023.
Tony: For the quarter, adjusted FFO was approximately $2 million, representing a decrease of about $850,000 from the same quarter in 2023.
Tony: Year-to-date, adjusted FFO, was approximately $14.3 million, representing a decrease of approximately 250,000 from the prior year.
Tony: Please note that our adjusted FFO excludes charges related to the early extinguishment of debt, unrelated gains and losses on derivative instruments, charges related to a boarded or abandoned and securities offerings, eSophants.com, compensation expenses, as well as other items.
Please refer to the earnings release for additional details.
Tony: Looking at our balance sheet as of December 31, 2024, company a total cash of about $28.7 million consisting of unrestricted cash and cash equivalents.
Tony: At the end of the quarter, we had principal balances of approximately $319.3 million not standing dead. I had a weighted average interest rate of 5.88%.
Tony: Approximately 84.5% 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 approximately $7.2 million.
Tony: for Calendar Year 2025. Significant portion of our product improvement plans at the Double Tree by Hilton, Philadelphia Airport, and the Double Tree by Hilton, Jacksonville will occur during the year.
Tony: with anticipated capital expenditures related to these projects to total approximately $11.6 billion.
Turning to guidance.
Tony: Republishing full year guidance for 2025, accounting for current and expected performance within the portfolio and taking into account market conditions. We're projecting total revenue in the range of 183.4 through 188.2 million dollars for full year 2025.
Tony: At the midpoint of this guidance, this represents a 2.1% increase over the prior year, until even as projected in the range of $48.8 to $49.6 million, and at the midpoint of the guidance this represents a 5.2% increase over the prior year.
Tony: Adjusted FFO, it's projected in the range of $11.5 to $12.3 million, or $57.61 per share. And at the midpoint of the guidance, this represents a 16.4% compared to the prior year. Now now turn the call over to Dave.
Thank you Tony, good morning everyone.
Dave: We were pleased with our portfolio's fourth quarter results, which capped off a productive year characterized by improved operating fundamentals and continued occupancy growth.
Dave: Additionally, the sustained recovery of two of our urban hotels in Houston and Philadelphia was an encouraging sign for the portfolio.
Dave: The noteworthy rebound and demand that our double tree hotel in Hollywood, Florida, which was driven by a balance of strong weekend leisure pickup and weekday group business was also a positive catalyst for our portfolio during the quarter.
Dave: Despite some softening and rate during the quarter, we continue to be encouraged with our manager's ability to utilize streamlined revenue management strategies in order to drive strong top-line growth, gain ref-part share versus our competitive sets, while delivering solid margins.
Dave: As a result of these initiatives, we were able to achieve our full year guidance targets for revenue, hotel EBITDA, and adjusted FFO which were initiated last March.
Dave: The White Hall in Houston was a standout performer as its re-energized sales effort drove 46% occupancy growth over a prior year, primarily through weekend leisure and group business, the latter of which improved more than 50% during the quarter.
Dave: for the year the White Hall's occupancy improved nearly 35% of a prior year while it's rev about a part share of more than 20%
Dave: Similarly, our double-true hotel at the Atlanta Airport delivered at the Philadelphia Airport, excuse me, delivered excellent occupancy growth of 16% over the prior year as the hotel outperformed its concept during the quarter.
Dave: Even with rates offness in this market, our manager was able to significantly improve that Hotels profitability relative to prior year, growing hotel EBITDA by 74% for the quarter.
Dave: We believe there is still significant opportunity for growth at this hotel as its occupancy remains nearly 600 basis points below 2019.
Dave: As one of the largest revenue contributors in the portfolio, the improved performance at our double tree hotel in Hollywood during the quarter was especially encouraging, with occupancy growth of 13.4% and hotel EBITDA growth of 15% over prior year.
Dave: Group Revenue Growth was also strong at this hotel, growing 15% of a prior year, looking at the total portfolio
Dave: Group continues to be the strongest driver of growth for the portfolio, expanding by 5.9% for a full year 24 with additional upside opportunities for 2025.
Dave: During the year, we completed refinancings or extensions at several hotels.
Dave: including the double tree at the Philadelphia Airport, Hotel Alba in Tampa, and the double tree hotel at Jacksonville, Florida. Currently, the company continues its efforts in executing life cycle improvements in conjunction with the renewal of Hilton franchises and its double tree locations in Philadelphia and Jacksonville.
Dave: We believe the necessary upgrades to these properties will allow our managers to drive increased profitability through rate capture to deliver long-term value.
Dave: Looking ahead, we will continue to conservatively approach upcoming debt maturities for our portfolio, which are spread evenly over the near term.
Dave: Looking at 2025, we continue to be consciously optimistic on the lodging industry, as we believe upscale and upper upscale hotels will outperform the broader market this year, a positive indicator for our portfolio's growth prospects.
Dave: Despite the uncertain macro environment so far this year, we have been pleasantly surprised by our portfolios operating fundamentals with January's results finishing well ahead of expectations.
Dave: Preliminary January Repar, highlighted by continued improvement in our urban hotels, coupled with strong demand in our South Florida hotels, showed a 12.8% improvement over prior
Dave: Folier 2025 Reffbar for our portfolios forecasted a range between 103 and 105 percent of Folier 2024 Reffbar. Looking ahead, we believe that our portfolio of well-positioned hotels driven by occupancy growth will continue to outperform.
Dave: and with that we will open the call-up for questions.
Dave: Thank you very much. We're going to open the line to Q&A. If you'd like to ask the question, please press star for a look by one on your telephone keypad now. If you'd like to remove the stuff that line of questioning will be star for a look by two.
Dave: Our first question comes from Alexander Goldfarb with Types Anna. Alexander, your line is now open.
Hey, morning down there. Just a few questions.
Dave: Looking at guidance, you know, revenue is projected to be higher, EBITDA is expected to be higher. You guys spoke about a pretty good outlook, you know, stable operating costs.
Dave: yet FFO looks to decline. So just want to get a bit more color on this. Is this because of refinancing activities or interest and also, you know, what do you think the trajectory of FFO is if, you know, operations are improving, but FFO is going down.
Speaker Change: This is Tony Alex. We're seeing improvements in revenue and EBIT as you said, but we have a belly of loans and that we originated five to ten years ago in the four to five percent interest.
Speaker Change: Rates that we're now having to refinance and so we're going to see interest cost creep up. We saw a creep up last year. We're seeing a creep up again in 2025 and I think until we complete these refinances, you're going to they'll slowly plateau as we complete all these refinances of those legacy mortgages.
Speaker Change: Okay, and then just following up on the AKU guys filed last month on the NASDAQ on the stock trading below $1.00, would seem like a reverse split is the easiest thing, but just curious how you guys are thinking about it, I think you have until August to get the stock above $1.00.
Speaker Change: That's right, Alex, it's Dave here. We have 180 days upon notice.
Speaker Change: to cure the deficiency and that's normally accomplished, as you said, by executing a reverse split of some ratio to get above the dollar threshold or during that period if the stock price rises above that dollar it will cure itself.
Speaker Change: Okay, and then as far as the hotels that you're doing at a repairs on, I think the Alba, is there anything in guidance for insurance recoveries?
Speaker Change: Like is any part of FFO enhanced by just, you know, recovering insurance dollars?
Speaker Change: This is Scott speaking. Our guy assumes normal operations at the hotel where we've had business and eruption proceeds from our transcareers to date.
Speaker Change: We've been, you know, doing those calculations on a monthly basis. So, as I think I mentioned in my comments, Q4 of last year, you know, our bottom line results, our revenue results and our bottom line have delivered results reflect the collection of those business interruption proceeds to essentially make us whole and that's our assumption going forward. The business interruption is...
Speaker Change: Fairly minimal at this point since the Hotels pretty much all put back together but every month it goes by any shortfall to expect that operations will be filled with that business interruption proceeds so the guidance is just assuming you know we're fully made whole.
Speaker Change: Okay, so basically what you're saying is, the number for the guidance for 2025 is a good run rate for the portfolio. It's not being enhanced at all by it. Okay, and then finally,
Speaker Change: Okay, cool. And then just last question, you know, you mentioned about refinancing this year, you know, obviously debt load on the company, you know, a re-asset and comfort. Given the steady rebounding in asset values, as you guys contemplate refinancing debt, especially to try and grow FFO.
Speaker Change: Is there any thought, any of the assets that have a healthy amount of equity?
Speaker Change: that you could see a path to maybe sell one or two.
Speaker Change: Start to unencumber some of the other assets with the excess proceeds and try to get this company in a better spot leverage-wise so that we can talk more about growing the equity. Is that something that you think is feasible or reasonable? As you as you think about. Thank you for watching and I'll see you next time.
Speaker Change: Yeah, I mean, we're always looking at options on how to manage cash and manage the portfolio structurally. I don't think we've really looked that hard at selling assets for the purpose you're articulating. I mean, I do believe that as...
Speaker Change: Fundamentals continue to go up hopefully that we're going to get better results on the refinancing picture. I mean, to date, interest rates have come down since last year.
Speaker Change: Some of the other structural aspects of refinancing and debt mortgaging as it is are still pretty sticky with debt yields and debt service coverage ratios. But our goal right now is to take each one of these mortgages.
Speaker Change: that are coming due with legacy loan rates and legacy loan structures and get the best outcome we can from the from the from the markets.
Speaker Change: and I think that's the strategy we looked at with the board and that's what we're going to pursue.
Okay, listen, thank you, thank you for your time.
David Folsom, David Folsom, David Folsom,
Speaker Change: Thank you very much. Thank you very much. As a further reminder, if you would like to raise a question please press the fuller by one in your telephone keypad now.
Speaker Change: We will allow just a moment for any questions to filter in.
Alexander Goldfarb, David Folsom,
Speaker Change: Thank you everyone for participating today and we look forward to our next earnings
Speaker Change: As we conclude today's call, we'd like to thank everyone for joining. You may now disconnect your lines.