Sotherly Hotels Inc. (SOHO): A Resilient Hospitality Powerhouse Weathering Industry Challenges

Published on November 17, 2024 | Ticker: SOHO

Company Overview

Sotherly Hotels Inc. (SOHO) is a self-managed and self-administered lodging real estate investment trust (REIT) that has established itself as a leading player in the upscale to upper-upscale full-service hotel market, primarily in the southern United States. With a focus on acquiring, renovating, and repositioning hotels, the company has built a diverse portfolio of properties that cater to a wide range of travelers, from business executives to leisure enthusiasts.

Historical Background

The company's origins trace back to 2004, when it was incorporated in Maryland and commenced operations later that year. Sotherly Hotels' initial public offering and the subsequent acquisition of six hotel properties, known as the Initial Properties, laid the foundation for its growth strategy. Over the years, the company has strategically expanded its footprint, leveraging its expertise in identifying underperforming assets and transforming them into thriving hospitality destinations. In 2007, Sotherly acquired the DoubleTree Resort by Hilton Hollywood Beach and the Hotel Alba Tampa, Tapestry Collection by Hilton, further expanding its presence in Florida. The company faced significant challenges during the COVID-19 pandemic in 2020 and 2021, which severely impacted the hospitality industry. To strengthen its balance sheet during this period, Sotherly obtained Paycheck Protection Program loans and suspended its preferred stock dividends. Despite these obstacles, the company persevered and achieved a significant milestone in its recovery by resuming quarterly payments of its preferred stock dividends in 2023. Additionally, Sotherly undertook strategic initiatives, such as repositioning its DoubleTree by Hilton Jacksonville Riverfront hotel into a lifestyle Hotel Bellamy and refinancing several of its mortgage loans to better position the company for the future.

Portfolio and Operations

As of the latest reporting period, Sotherly Hotels' portfolio consists of ten full-service hotels, comprising 2,790 rooms, as well as interests in two condominium hotels and their associated rental programs. The company's properties operate under well-known brands such as DoubleTree by Hilton, Tapestry Collection by Hilton, and Hyatt Centric, as well as independent hotels that the company has successfully repositioned.

Financial Performance

Sotherly Hotels' financial performance has been marked by a resilient approach, as evidenced by its recent quarterly results. For the third quarter of 2024, the company reported total revenue of $40.7 million, representing a 3.9% increase compared to the same period in 2023. This growth was driven by a 7.8% increase in occupancy, which offset a 3.4% decline in average daily rate (ADR). Year-to-date, the company's total revenue stood at $137.9 million, a 4.7% increase over the same period in the prior year.

The company's focus on cost management and operational efficiency has also contributed to its profitability. For the third quarter, Sotherly Hotels reported Hotel EBITDA of $8.1 million, representing a 6.8% increase from the same quarter in 2023. On a year-to-date basis, Hotel EBITDA reached $36.1 million, a 4.8% increase compared to the same period in the prior year.

For the most recent fiscal year of 2023, Sotherly Hotels reported total revenue of $173.84 million and a net income of $3.94 million. The company generated operating cash flow (OCF) and free cash flow (FCF) of $21.40 million each. In the second quarter of 2024, the company reported total revenue of $50.69 million, an increase of 3.4% compared to $49.02 million in the same period in 2023. The increase was driven by higher room, food and beverage, and other operating revenues across the portfolio.

Hotel operating expenses, including room, food and beverage, other direct, indirect, and management fees, increased 2.4% to $35.00 million for the three months ended June 30, 2024, compared to $34.18 million in the prior year period. The increase was directly related to the higher revenues. Net income for this period was $4.66 million, compared to $5.26 million in the prior year period, with the decrease primarily due to higher interest expense.

Funds from Operations (FFO) attributable to common stockholders and unitholders was $7.36 million for the three months ended June 30, 2024, compared to $7.25 million in the prior year period. Adjusted FFO attributable to common stockholders and unitholders was $7.50 million, up from $7.03 million in the prior year period.

Industry Trends and Adaptation

Despite the challenges faced by the hospitality industry, Sotherly Hotels has demonstrated its ability to adapt and capitalize on emerging trends. The company's portfolio of well-positioned hotels, combined with its focus on group and business travel, has enabled it to weather the storm and deliver solid financial results.

Future Outlook

Looking ahead, Sotherly Hotels remains cautiously optimistic about its future prospects. The company has updated its guidance for the full year 2024, projecting total revenue in the range of $177.8 million to $180.1 million, representing a 3% increase over the prior year. Hotel EBITDA is expected to be in the range of $45 million to $45.6 million, a 1.1% increase over 2023. Additionally, the company's adjusted FFO is projected to be between $12.8 million and $13.4 million, or $0.65 to $0.68 per share, a 9.8% decrease compared to the prior year.

Liquidity and Balance Sheet

Sotherly Hotels' resilience is further evident in its balance sheet. As of the latest reporting period, the company had total cash of $32.5 million, consisting of $14 million in unrestricted cash and $18.5 million in reserves for real estate taxes, insurance, capital improvements, and other items. The company's debt portfolio is well-structured, with approximately 84.5% of its debt carrying a fixed rate of interest.

The company's financial health is reflected in its key liquidity ratios. As of the third quarter of 2024, Sotherly Hotels reported a current ratio of 1.81 and a quick ratio of 1.81, indicating a strong ability to meet its short-term obligations. The debt-to-equity ratio for the fiscal year 2023 stood at 6.24, reflecting the company's leveraged position in the capital-intensive hospitality industry.

Strategic Positioning

The company's strategic approach to managing its assets, coupled with its disciplined capital allocation, has positioned Sotherly Hotels to navigate the industry's challenges and capitalize on opportunities as they arise. Despite the headwinds faced by the hospitality sector, Sotherly Hotels remains committed to delivering long-term value for its shareholders.

Conclusion

In conclusion, Sotherly Hotels Inc. (SOHO) has proven to be a resilient and adaptable player in the upscale to upper-upscale hotel market. Its diversified portfolio, operational efficiency, and prudent financial management have enabled the company to weather industry challenges and maintain a solid financial footing. As the hospitality industry continues to evolve, Sotherly Hotels is poised to leverage its strengths and capitalize on the recovery of the sector, positioning itself as a compelling investment proposition for investors seeking exposure to the dynamic hospitality market.

You may be interested in...

Hilton Worldwide Holdings Inc. (HLT): Powering Exceptional Guest Experiences Across the Globe

Hilton Worldwide Holdings Inc. (HLT) is a global hospitality leader that has been creating exceptional guest experiences for nearly a century. Founded in 1919 by Conrad Hilton, the company has evolved from a single hotel in Cisco, Texas, to a portfolio of over 8,000 properties spanning 138 countries and territories, comprising 1.25 million rooms as of September 30, 2024.

Ashford Hospitality Trust, Inc. (AHT-PF): Strategic Realignment and Sustainable Growth

Ashford Hospitality Trust, Inc. (AHT-PF) is a real estate investment trust (REIT) that primarily focuses on investing in upper-upscale, full-service hotels in the United States. The company's portfolio consists of a diverse mix of hotel properties, strategically located in key markets across the country. With a rich history spanning over two decades, Ashford Hospitality Trust has navigated the dynamic hospitality industry, adapting to various market conditions and emerging trends.

Sotherly Hotels (SOHO): A Resilient Hospitality REIT Navigating Evolving Industry Dynamics

Sotherly Hotels Inc. (SOHO) is a self-managed and self-administered lodging real estate investment trust (REIT) that has focused on acquiring, renovating, upbranding, and repositioning upscale to upper-upscale full-service hotels primarily in the southern United States. With a portfolio of 10 wholly-owned hotels comprising 2,790 rooms, as well as interests in two condominium hotels with associated rental programs, Sotherly has established itself as a key player in the regional hospitality market.

Sotherly Hotels (SOHO): A Resilient REIT Navigating Shifting Tides in the Lodging Sector

Sotherly Hotels Inc. (NASDAQ:SOHO) is a self-managed and self-administered lodging real estate investment trust (REIT) that has carved out a niche for itself in the upscale and upper-upscale hotel segment. With a focus on the acquisition, renovation, up-branding, and repositioning of full-service hotels primarily in the southern United States, Sotherly has weathered the challenges of the past few years and emerged as a resilient player in the industry.