Sotherly Hotels Inc. Price & Performance (SOHO)

Thanks, Mac. Good morning, everyone. I'll start off today's call with a review of our portfolio's key operating metrics for the fourth quarter. We at the fourth quarter results for the actual portfolio compared to 2023, RevPAR increased 2.9% driven by a 7% increase in occupancy [indiscernible] a 3.7% decrease in ADR. Stripping out Tampa from the results due to hurricane impact, the fourth quarter's actual portfolio RevPAR increased to healthy 5.8 Looking at the fourth quarter results for the actual same store portfolio relative RevPAR increased 3.8% driven by ADR growth of 7.9%, while occupancy was down 3%. For the full year 2024, RevPAR 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. [indiscernible] Again, stripping out Tampa from the results due to hurricane impact, the annual Looking at the annual results for the same store actual portfolio relative to 2019, RevPAR was up 1.3%. Driven by ADR growth of 8.6% and occupancy decline of 6.8%. Overall, our portfolio's fourth quarter results driven by strong year over year occupancy growth ahead of our budget expectations. Occupancy growth was especially strong in our slower to recover urban markets a positive indicator that lodging fundamentals have normalized following the uneven recovery period.

Following the pandemic. 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%, partially offsetting the quarter's 6.1 The Hurricane Helene was struck during the third quarter, contributed to significant operational impact during the fourth quarter of twenty twenty four. As a result of the hurricane storm surge, Hotel Alba sustained water intrusion on First Floor of the hotel, causing damage to furniture, finishes and equipment, and public areas and guest rooms as well as some building systems. Due to our operating team's expeditious restoration efforts following the storm, the hotel remained fully operational. To date, the work associated with this fully insured casualty has been efficiently executed and only final FF and E replacements and elevator work remain to be accomplished. Anticipate the impact of operations at Hotel Alba as a result of Hurricane Helene to continue through the second quarter of this year. An accounting perspective, the company's headline quarterly operating metrics including occupancy, ADR and RevPAR reflect the impact of Hurricane Helene on Hotel Albis operations prior to business interruption insurance proceeds. While the company's revenue and profitability metrics include business interruption insurance credits.

Looking at some highlights across the portfolio, The DoubleTree Resort in Hollywood, Florida posted strong year over year results during the quarter improving RevPAR by 13.8% fueled by a 13.4% increase in occupancy, a slight increase in rate. The hotels improvement in occupancy which led to greater ancillary revenue capture, was a result of stronger than expected weekend demand as well as improved bookings. Driven by a 13% increase in occupancy share, the DoubleTree easily outperformed growing its RevPAR index by 8.5%. The Whitehall in Houston continued to build momentum during the fourth quarter growing RevPAR by nearly 50% driven by occupancy growth of 46.1% and rate growth of 2.7%. The hotels improved performance was predominantly driven by growth in the leisure transient segment, [indiscernible] Whitehall easily outperformed its competitive set during the quarter, gaining more than 30% RevPAR share fueled by strong occupancy share improvement of nearly 34%. [indiscernible] DoubleTree Hotel in Philadelphia continued its streak of improved performance during the fourth quarter posting a 9.4% increase in RevPAR driven by a 16.2% increase in occupancy. Hotel submarket continues to trend positively during the quarter benefiting from increased demand from special events as well as improved airport traffic. Meanwhile, the hotel's strong occupancy growth which is driven by increased business and group travel, contributed to a 5.2% RevPAR share gain during the fourth quarter.

Hotel Ballast in Wilmington posted strong year over year results growing RevPAR by 7.1%. Was fueled by 1.9% increase in occupancy and a 5% increase in rate. Hotel ballast well balanced approach highlighted by group strong banquet and catering contribution continues to drive the hotel's revenue picture.

Looking at profitability metrics for the portfolio, while hotel EBITDA margin experienced a slight year over year decline, the prior year includes $700,000 grant payment at the Georgia Terrace.

Stripping out this one time event, fourth quarter hotel EBITDA margin improved by 150 basis basis points over prior year.

Commendable effort considering the portfolio's moderate rate decline during the quarter. The portfolio's occupancy growth trend has allowed our managers to drive also taking advantage of economies of scale.

Especially in our slower to recover markets in order to drive flow through. [indiscernible] Moving forward, we expect normalized staffing and amenity levels along with stabilized wage costs to result in relatively stable margins for the portfolio. Turning to corporate activity. The company continues planning and preparation for two upcoming PIP renovations, In Philadelphia, we have executed a new ten year franchise agreement with Hilton for the DoubleTree Flag The acquired PIP renovation has a $11,500,000 budget with an expected completion date of 05/01/2026.

In Jacksonville, the company executed a new ten year franchise agreement with Hilton to convert the hotel to a soft branded concept under the name Hotel Bellamy This $14,600,000 renovation has an expected completion date of 01/01/2027.

I will now turn the call over to Tony.

Thank you, Scott.

Reviewing performance for the period ended 12/31/2024, For the fourth quarter, total revenue was approximately $44,000,000 representing an increase of 4.3% over the same quarter of 2023. Year to date, total revenue was approximately $182,000,000 representing an increase of 4.6% over full year 2023. [indiscernible] Hotel EBITDA for the quarter was approximately $10,700,000 representing an increase of 3.6% from the same quarter last year.

Year to date, hotel EBITDA was approximately $46,800,000 representing an increase of 4.5% over full year 2023. [indiscernible] the quarter, adjusted FFO was approximately $2,000,000 representing a decrease. Of about $850,000 from the same quarter in 2023. Year to date, adjusted FFO was approximately $14,300,000 representing a decrease approximately 250,000 from the prior year. 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 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, realized gains and losses on derivative instruments and the current portion of our tax provision as well.

Please refer to the earnings release for additional detail.

Looking at our balance sheet as of 12/31/2024, company had total cash of approximately $28,700,000 consisting of unrestricted cash and cash equivalents of approximately $7,300,000 as well as approximately $21,400,000 which was reserved for real estate taxes insurance, capital improvements and certain other items. The end of the quarter, we had principal balances of approximately $319,300,000 in outstanding debt, at a weighted average interest rate of 5.88%. Approximately 84.5% 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 approximately $7,200,000 calendar year 2025. Significant portion of our product improvement plans at the DoubleTree By Hilton Philadelphia Airport and the DoubleTree by Hilton Jacksonville will occur during the year. Anticipated capital expenditures related to these projects to total approximately $11,600,000,000 Turning to guidance. We're publishing 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 $183,400,000 to $188,200,000 for full year 2025. At the midpoint of this guidance, this represents a 2.1% increase over the prior year.

Hotel EBITDA projected in the range of $48,800,000 to $49,600,000 and at the midpoint of the guidance, this represents a 5.2% increase over the prior year. Adjusted FFO is projected in the range of $11,500,000 to $12,300,000 or $0.57 to $0.61 per share. And at the midpoint of the guidance, this represents a 16.4% increase compared to the prior year. I'll now turn the call over to Dave. Thank you, Tony, and good morning, everyone. 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.

Our portfolio's 6.1% occupancy improvement during the fourth quarter was particularly impressive given the challenges faced at our Tampa hotel following the major hurricane at the end of the third quarter. Additionally, the sustained recovery at two of our urban hotels in Houston and Philadelphia was an encouraging sign for the portfolio. Noteworthy rebound in demand at our DoubleTree 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. Despite some softening in rate during the quarter, we continue to be encouraged with our managers' ability to utilize streamlined revenue management strategies in order drive strong top line growth gain RevPAR share versus our competitive sets, delivering solid margins. 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. Occupancy growth continued during the quarter with many of our hotels delivering double digit occupancy growth over prior year. The Whitehall in Houston was a standout performer as its reenergized sales effort drove 46% occupancy growth over prior year, primarily through weekend leisure and group business.

The latter of which improved more than 50% during the quarter. For the year, the Whitehall's occupancy improved nearly 35 its RevPAR share grew more than 20%. Similarly, our DoubleTree Hotel at the Atlanta Airport delivered at the Philadelphia Airport, excuse me, delivered excellent occupancy growth of 16% over prior year as the hotel outperformed its comp set during the quarter. Even with rate softness in this market, our manager was able to significantly improve that hotel's profitability relative to prior year. Growing hotel EBITDA by 74% for the quarter. [indiscernible] believe there is still significant opportunity for growth at this hotel as its occupancy remains nearly 600 basis points below 2019. As one of the largest revenue contributors in the portfolio, the improved performance at our DoubleTree Hotel in Hollywood during the quarter was especially encouraging. With occupancy growth of 13.4%, and hotel EBITDA growth of 15% over prior year. Group revenue growth was also strong at this hotel growing 15% over prior year.

Looking at the total portfolio, group continues to be the strongest driver of growth for the portfolio, expanding by 5.9% with additional upside opportunities for 2025. Looking at our balance sheet initiatives, throughout 2024, Sotherly continued to successfully navigate the mortgage markets despite ongoing challenges in the debt markets from a borrower perspective. During the year, we completed refinancings or extensions of several hotels, including the DoubleTree at the Philadelphia Airport, Hotel Alba in Tampa and the DoubleTree Hotel in Jacksonville, Florida. Concurrently, the company continues its efforts in executing lifecycle improvements in conjunction with the renewal of Hilton franchises and its DoubleTree locations in Philadelphia and Jacksonville. We believe the necessary upgrades to these properties will allow our managers to drive and increased profitability through rate capture to deliver long term value. Looking ahead, we will continue to conservatively conservatively approach upcoming debt maturities for our portfolio, which are spread evenly over the near term. Looking at 2025, we continue to be cautiously optimistic on the lodging as we believe upscale and upper upscale hotels will outperform [indiscernible] Despite the uncertain macro environment so far this year, we with January's results finishing well ahead of expectations. Preliminary January RevPAR highlighted by continued improvement at our urban hotels coupled with strong demand at our South Florida hotels showed a 12.8% improvement over prior year.

Full year 2025 RevPAR for our portfolio is forecasted a range between 103105% of full year 2024 RevPAR. Looking ahead, we believe that our portfolio of well positioned hotels driven by occupancy growth will continue to outperform. And with that, we will open the call up for questions. You very much. We'd now like to open the lines for Q and A. A. Our first question comes from Alexander Goldfarb of Piper Sandler. Alexander, your line is now open.

Hey, good morning down there. Just a few questions. Looking at guidance, revenue is projected to be higher, EBITDA is expected to be higher. You guys spoke about a pretty good outlook, stable operating costs. 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 what do you think the trajectory of FFO is if operations are improving, but FFO is going down? [indiscernible] is Tony, Alex. We're seeing improvements in revenue and EBITDA as you said. But we have a bevy of loans and that we originated five to ten years ago and the 4% to 5% interest rates that we're now having to refinance. And so we're going to see interest costs creep up. We saw a creep up last year. We're seeing it creep up again to 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.

Okay. And then just following up on the eight ks you guys filed last month on the from NASDAQ. On the stock trading below $1 it would seem like a reverse split is 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 That's right. Alex, it's Dave here. We have one hundred and eighty days upon notice 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 the stock price rises above that dollar, it will cure itself.

Okay. And then as far as the hotels that you're doing the repairs on, think the Alba, is there anything in guidance for insurance recoveries Like is any part of FFO enhanced by just recovering insurance dollars Alex, this is Scott speaking. Our guidance assumes normal operations at the hotel where we've had business interruption proceeds from our insurance carriers to date. We've been doing those calculations on a monthly basis. So as I think I mentioned in my comments, Q4 of last year our bottom line results our revenue results and our bottom line are deleted results. Reflect the collection of those business interruption proceeds to essentially make us whole. That's our assumption going forward. The business interruption is fairly minimal at this point.

Since the hotel is pretty much all put back together. But every month that goes by, any shortfall to operations will be filled with that business interruption proceeds. So the guidance is just assuming we're fully made whole.

Okay. So basically what you're saying is the number for the guidance for 2025 a good run rate for the portfolio. It's not being enhanced at all by [indiscernible] okay, cool. And then just last question, you mentioned about refinancing this year. Obviously, debt load on the company every asset encumbered. Given the study rebounding in asset values, as you guys contemplate refinancing debt, especially to try and grow FFO Is there any thought any of the assets that have a healthy amount of equity that you could see a path to maybe sell one or two 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 think about refinancing?

I mean, we're always looking at options on how to how to manage cash and manage the portfolio structurally. I don't think we've really looked at hard at selling assets for the purpose you're articulating. Mean, I do believe that as 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. Some of the other structural aspects of refinancing and debt mortgageing 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 that are coming due with legacy loan rates and legacy loan structures and get the best outcome we can from the markets. And I think that's the strategy we've looked at with the Board and that's what we're going to pursue.

Okay. Listen, thank you for your time.

Thank you very much. We currently have no further questions. So I'd like to hand back to Dave Folsom for any closing remarks.

Thank you everyone for participating today and we look forward you, operator. As we conclude today's call, we'd like to thank everyone for joining. You may now disconnect your lines.