OREANDA-NEWS. Sotherly Hotels Inc. (NASDAQ:SOHO), (“Sotherly” or the “Company”), a self-managed and self-administered lodging real estate investment trust (a “REIT”), today reported its consolidated results for the second quarter ended June 30, 2016. The Company’s results include the following*:

  Three Months Ended     Six Months Ended  
  June 30, 2016     June 30, 2015     June 30, 2016     June 30, 2015  
  ($ in thousands except per share data)     ($ in thousands except per share data)  
Total Revenue $ 41,825     $ 36,865     $ 79,635     $ 67,841  
Net income attributable to the Company   1,761       1,431       2,244       2,006  
                               
EBITDA and Adjusted EBITDA   11,136       10,780       20,178       17,996  
Hotel EBITDA   12,508       11,898       22,568       19,713  
                               
FFO   5,919       5,137       10,134       8,867  
Adjusted FFO   6,515       6,741       10,293       9,974  
                               
Net income per share attributable to the Company $ 0.12     $ 0.13     $ 0.19     $ 0.19  
FFO per share and unit $ 0.35     $ 0.39     $ 0.61     $ 0.68  
Adjusted FFO per share and unit $ 0.39     $ 0.52     $ 0.62     $ 0.76  
                               

(*) Earnings before interest, taxes, depreciation and amortization (“EBITDA”), adjusted EBITDA, hotel EBITDA, funds from operations (“FFO”), adjusted FFO, FFO per share and unit and adjusted FFO per share and unit are non-GAAP financial measures. See further discussion of these non-GAAP measures, including definitions related thereto, and reconciliations to net income (loss) later in this press release. All references in this release to the “Company”, “Sotherly”, “we”, “us” and “our” refer to Sotherly Hotels Inc., its operating partnership and its subsidiaries and predecessors, unless the context otherwise requires or where otherwise indicated.

HIGHLIGHTS:

  • RevPAR. Room revenue per available room (“RevPAR”) for the Company’s wholly-owned properties during the second quarter 2016 increased 1.7% over the second quarter 2015 to $109.16 driven by a 0.8% increase in occupancy and a 0.9% increase in average daily rate (“ADR”).  Excluding the performance of our Jeffersonville, Indiana property over the weekend of the Kentucky Derby, RevPAR for the Company’s wholly-owned properties during the second quarter 2016 increased 6.5% over the second quarter 2015 driven by a similar increase in occupancy and a 5.6% increase in ADR.  For the six month period ending June 30, 2016, RevPAR increased 7.0% over the six months ended June 30, 2015, to $104.44 driven by a 0.5% increase in occupancy and a 6.3% increase in ADR.  Excluding the performance of our Jeffersonville, Indiana property over the weekend of the Kentucky Derby, RevPAR for the Company’s wholly-owned properties for the six month period ending June 30, 2016, increased 9.7% over the six months ended June 30, 2015.
  • Common Dividends. As previously reported on July 26, 2016, the Company announced its quarterly dividend (distribution) on its common stock (and units) at $0.095 per share (and unit) to be paid on October 11, 2016 to stockholders (and unitholders) of record as of September 15, 2016.
  • Hotel EBITDA. The Company generated hotel EBITDA of approximately $12.5 million during the second quarter 2016, an increase of 5.1%, or approximately $0.6 million, over the second quarter 2015.  Excluding the performance of our Jeffersonville, Indiana property over the weekend of the Kentucky Derby, hotel EBITDA for the second quarter 2016 increased 15.1%, or approximately $1.5 million, over the second quarter 2015.  For the six month period ending June 30, 2016, hotel EBITDA increased 14.5%, or approximately $2.9 million, over the six months ended June 30, 2015.  Excluding the performance of our Jeffersonville, Indiana property over the weekend of the Kentucky Derby, hotel EBITDA for the six month period ending June 30, 2016 increased 20.9% over the six months ended June 30, 2015.
  • Adjusted EBITDA. The Company generated adjusted EBITDA of approximately $11.1 million during the second quarter 2016, an increase of 3.3%, or approximately $0.4 million, over the second quarter 2015. Excluding the performance of our Jeffersonville, Indiana property over the weekend of the Kentucky Derby, adjusted EBITDA for the second quarter 2016 increased 14.0%, or approximately $1.3 million, over the second quarter 2015.  For the six month period ending June 30, 2016 adjusted EBITDA increased 12.1% or approximately $2.2 million over the six months ended June 30, 2015.
  • Adjusted FFO. The Company generated adjusted FFO of approximately $6.5 million during the second quarter 2016, a decrease of 3.3% or approximately $0.2 million over the second quarter 2015. 

Andrew M. Sims, Chairman and Chief Executive Officer of Sotherly Hotels Inc., commented, “Generally, our portfolio performed as expected.  The exception was our Sheraton Louisville Riverside hotel, which suffered a significant reduction in quarterly ADR, RevPAR, and hotel EBITDA as a result of a change in policy by the franchisor, Starwood Hotels and Resorts, regarding its frequent traveler reimbursements for the Kentucky Derby weekend.  Unfortunately, the Company has no control over the policy change and was compelled to comply.  The balance of the portfolio produced solid results including a 6.5% increase in RevPAR.”

Balance Sheet/Liquidity

At June 30, 2016, the Company had approximately $30.6 million of available cash and cash equivalents, of which approximately $4.5 million was reserved for real estate taxes, insurance, capital improvements and certain other expenses or otherwise restricted. The Company had approximately $334.1 million in outstanding debt at a weighted average interest rate of approximately 5.08%. 

On June 30, 2016, the Company entered into a loan agreement and other loan documents, including a guaranty of payment by the Operating Partnership, to secure a $19.0 million mortgage on the Crowne Plaza Tampa Westshore with Fifth Third Bank.  Pursuant to the loan documents, the mortgage loan: provides initial proceeds of $15.7 million, with an additional $3.3 million available upon the satisfaction of certain conditions; has an initial term of three years, and may be extended for two additional periods of one year each, subject to certain conditions; bears a floating interest rate of the 30-day LIBOR plus 3.75%, subject to a floor rate of 3.75%; amortizes on a 25-year schedule; and is guaranteed by Sotherly Hotels LP. The Company used the proceeds to repay the existing first mortgage on the hotel and to pay closing costs, and will use the balance of the proceeds for general corporate purposes.

On June 27, 2016, the Company entered into a promissory note and other loan documents to secure a $35.0 million mortgage on the Hilton Savannah DeSoto with MONY Life Insurance Company.  Pursuant to the loan documents, the mortgage loan:  provides initial proceeds of $30.0 million, with an additional $5.0 million available upon the satisfaction of certain conditions, namely, the completion of a renovation project; has a maturity date of July 1, 2026; carries a fixed interest rate of 4.25%; amortizes on a 25-year schedule after a 1-year interest-only period; and is subject to a prepayment premium. The Company used the proceeds to repay the existing first mortgage on the hotel and to pay closing costs, and will use the balance of the proceeds to fund ongoing renovations at the hotel and for general corporate purposes.

Portfolio Update

At the Company’s hotel in Atlanta, Georgia, an estimated $7.0 million guestroom renovation is substantially complete.  As of June 30, 2016, the Company had incurred costs totaling approximately $6.7 million toward this renovation.  On September 24, 2015, the hotel became The Georgian Terrace by Sotherly, the first signature property of our premier boutique collection.

In April 2016, the Company converted the Houston, Texas property to The Whitehall by Sotherly Hotels, an independent hotel and member of Preferred Hotels & Resorts.

At the Company’s hotel in Savannah, Georgia, renovations of the guestrooms and public spaces totaling an estimated $8.1 million are underway.  As of June 30, 2016, the Company had incurred costs totaling approximately $2.8 million toward this renovation.  Renovations are expected to be complete in August 2017. 

On April 29, 2016, we entered into an agreement to sell the Crowne Plaza Hampton Marina to Three Capital Hotels, Inc. for a price of $5.8 million.  The Company intends to use the proceeds from the sale of the hotel to repay the existing first mortgage on the hotel and for general corporate purposes.  The closing of the sale, which we expect to occur in August 2016, is subject to various customary closing conditions.

2016 Outlook 

The Company is updating its previously issued guidance for 2016, accounting for current and expected performance within its portfolio, taking into account the impact of recent repositioning of the Company’s assets in Laurel, Maryland and Jacksonville, Florida, continued market weakness in Houston, Texas where the Company’s hotel was recently repositioned, as well as the financial performance of the Company’s hotel in Jeffersonville, Indiana over the Kentucky Derby weekend, which was negatively impacted by Starwood’s change in policy regarding its frequent traveler reimbursements.  The guidance is predicated on estimates of occupancy and ADR that are consistent with the most recent 2016 calendar year forecasts by Smith Travel Research for the market segments in which the Company operates.

The table below reflects the Company’s projections, within a range, of various financial measures for 2016, in thousands of dollars, except per share and RevPAR data:

  Prior 2016 Guidance     Revised 2016 Guidance    
  Low Range     High Range     Low Range     High Range    
             
Total revenue $ 151,626     $ 154,290     $ 151,136     $ 153,865    
Net income   5,017       6,054       4,264       5,681    
                                 
EBITDA   39,135       40,472       37,714       39,211    
Adjusted EBITDA   39,135       40,472       37,714       39,211    
Hotel EBITDA   44,685       45,722       43,264       44,461    
                                 
FFO   20,017       21,054       19,264       20,681    
Adjusted FFO   20,241       21,578       19,235       20,572    
                                 
Net income per share attributable to the Company $ 0.30     $ 0.36     $ 0.25     $ 0.34    
FFO per share and unit $ 1.20     $ 1.26     $ 1.15     $ 1.24    
Adjusted FFO per share and unit $ 1.21     $ 1.29     $ 1.15     $ 1.23    
Rev PAR $ 102.00     $ 104.00     $ 101.49     $ 103.33    
Hotel EBITDA margin   29.5 %     29.6 %     28.6 %     28.9 %  
                                 

Earnings Call/Webcast

The Company will conduct its second quarter 2016 conference call for investors and other interested parties at 10:00 a.m. Eastern Time on Tuesday, August 9, 2016. The conference call will be accessible by telephone and through the Internet. Interested individuals are invited to listen to the call by telephone at 888-339-0107 (United States) or 855-669-9657 (Canada) or +1 412-902-4188 (International). To participate on the webcast, log on to www.sotherlyhotels.com at least 15 minutes before the call to download the necessary software. For those unable to listen to the call live, a taped rebroadcast will be available beginning one hour after completion of the live call on August 9, 2016 through August 8, 2017. To access the rebroadcast, dial 877-344-7529 and enter conference number 10086526. A replay of the call also will be available on the Internet at www.sotherlyhotels.com until August 8, 2017.

About Sotherly Hotels Inc.

Sotherly Hotels Inc. is a self-managed and self-administered lodging REIT focused on the acquisition, renovation, upbranding and repositioning of upscale to upper-upscale full-service hotels in the Southern United States. Currently, the Company’s portfolio consists of investments in twelve hotel properties, comprising 3,011 rooms. Most of the Company’s properties operate under the Hilton Worldwide, InterContinental Hotels Group and Starwood Hotels Resorts brands. Sotherly Hotels Inc. was organized in 2004 and is headquartered in Williamsburg, Virginia. For more information please visit www.sotherlyhotels.com. 

Forward-Looking Statements

This news release includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although the Company believes that the expectations and assumptions reflected in the forward-looking statements are reasonable, these statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions which are difficult to predict and many of which are beyond the Company’s control. Therefore, actual outcomes and results may differ materially from what is expressed, forecasted or implied in such forward-looking statements. Factors which could have a material adverse effect on the Company’s future results, performance and achievements, include, but are not limited to: national and local economic and business conditions that affect occupancy rates and revenues at the Company’s hotels and the demand for hotel products and services; risks associated with the hotel industry, including competition, increases in wages, energy costs and other operating costs; the magnitude and sustainability of the economic recovery in the hospitality industry and in the markets in which the Company operates; the availability and terms of financing and capital and the general volatility of the securities markets; risks associated with the level of the Company’s indebtedness and its ability to meet covenants in its debt agreements and, if necessary, to refinance or seek an extension of the maturity of such indebtedness or modify such debt agreements; management and performance of the Company’s hotels; risks associated with maintaining our system of internal controls; risks associated with the conflicts of interest of the Company’s officers and directors; risks associated with redevelopment and repositioning projects, including delays and cost overruns; supply and demand for hotel rooms in the Company’s current and proposed market areas; risks associated with our ability to maintain our franchise agreements with our third party franchisors; the Company’s ability to acquire additional properties and the risk that potential acquisitions may not perform in accordance with expectations; the Company’s ability to successfully expand into new markets; legislative/regulatory changes, including changes to laws governing taxation of REITs; the Company’s ability to maintain its qualification as a REIT; and the Company’s ability to maintain adequate insurance coverage. These risks and uncertainties are described in greater detail under “Risk Factors” in the Company’s Annual Report on Form 10-K and subsequent reports filed with the Securities and Exchange Commission. The Company undertakes no obligation to and does not intend to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Although the Company believes its current expectations to be based upon reasonable assumptions, it can give no assurance that its expectations will be attained or that actual results will not differ materially.

Financial Tables Follow…

SOTHERLY HOTELS INC.
CONSOLIDATED BALANCE SHEETS
 
   
  June 30, 2016     December 31, 2015  
  (unaudited)          
ASSETS              
Investment in hotel properties, net $ 350,464,184     $ 354,963,242  
Investment in hotel properties held for sale, net   5,504,696        
Cash and cash equivalents   26,085,488       11,493,914  
Restricted cash   4,484,016       5,793,840  
Accounts receivable, net   4,064,322       4,071,175  
Accounts receivable-affiliate   210,618       226,552  
Loan proceeds receivable         2,600,711  
Prepaid expenses, inventory and other assets   5,039,136       4,432,432  
Deferred income taxes   5,397,989       5,390,374  
TOTAL ASSETS $ 401,250,449     $ 388,972,240  
LIABILITIES              
Mortgage loans, net $ 279,454,808     $ 270,331,724  
Unsecured notes, net   50,830,408       50,460,106  
Accounts payable and accrued expenses   14,605,689       12,334,879  
Advance deposits   2,197,892       1,651,840  
Dividends and distributions payable   1,505,501       1,335,323  
TOTAL LIABILITIES $ 348,594,298     $ 336,113,872  
Commitments and contingencies (See Note 5)          
EQUITY              
Sotherly Hotels Inc. stockholders’ equity              
Preferred stock, par value $0.01, 972,350 shares authorized, 0 shares issued and outstanding          
Common stock, par value $0.01, 49,000,000 shares authorized, 14,949,651 shares and 14,490,714 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively   149,496       144,907  
Additional paid in capital   83,796,667       82,749,058  
Distributions in excess of retained earnings   (34,262,825 )     (33,890,834 )
Total Sotherly Hotels Inc. stockholders’ equity   49,683,338       49,003,131  
Noncontrolling interest   2,972,813       3,855,237  
TOTAL EQUITY   52,656,151       52,858,368  
TOTAL LIABILITIES AND OWNERS' EQUITY $ 401,250,449     $ 388,972,240  

 

SOTHERLY HOTELS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
   
     Three Months Ended     Three Months Ended     Six Months Ended     Six Months Ended  
    June 30, 2016     June 30, 2015     June 30, 2016     June 30, 2015  
REVENUE                                
Rooms department   $ 29,909,287     $ 26,351,371     $ 57,231,700     $ 47,687,785  
Food and beverage department     9,578,410       8,605,316       17,828,089       16,332,123  
Other operating departments     2,337,257       1,908,421       4,575,309       3,820,830  
Total revenue     41,824,954       36,865,108       79,635,098       67,840,738  
EXPENSES                                
Hotel operating expenses                                
Rooms department     7,599,209       6,498,077       14,679,842       12,341,017  
Food and beverage department     6,490,681       5,700,236       12,430,542       11,105,621  
Other operating departments     644,430       362,987       1,238,399       701,166  
Indirect     14,613,064       12,332,869       28,748,658       23,801,212  
Total hotel operating expenses     29,347,384       24,894,169       57,097,441       47,949,016  
Depreciation and amortization     3,801,478       3,304,906       7,470,115       6,209,297  
Corporate general and administrative     1,356,754       1,490,380       2,964,048       2,941,604  
Total operating expenses     34,505,616       29,689,455       67,531,604       57,099,917  
NET OPERATING INCOME     7,319,338       7,175,653       12,103,494       10,740,821  
Other income (expense)                                
Interest expense     (4,613,165 )     (3,840,435 )     (9,245,797 )     (7,614,970 )
Interest income     10,207       15,308       19,038       25,409  
Equity income in joint venture           24,368             498,717  
Loss on early debt extinguishment     (70,293 )     (698,083 )     (70,293 )     (698,083 )
Loss on disposal of assets     (140,193 )           (140,193 )      
Unrealized loss on hedging activities     (15,517 )           (66,074 )      
Gain on involuntary conversion of asset           37,833             37,833  
Net income before income taxes     2,490,377       2,714,644       2,600,175       2,989,727  
Income tax provision     (512,827 )     (955,535 )     (76,747 )     (516,760 )
Net income     1,977,550       1,759,109       2,523,428       2,472,967  
Less: Net income attributable to the noncontrolling interest     (216,444 )     (327,999 )     (279,223 )     (466,523 )
Net income attributable to the Company   $ 1,761,106     $ 1,431,110     $ 2,244,205     $ 2,006,444  
Net income per share attributable to the Company                                
Basic and diluted   $ 0.12     $ 0.13     $ 0.15     $ 0.19  
                                 
Weighted average number of shares outstanding                                
Basic and diluted     14,949,651       10,768,730       14,871,281       10,682,743  
                                 

SOTHERLY HOTELS INC.
KEY OPERATING METRICS
(unaudited)

The following tables illustrate the key operating metrics for the three and six months ended June 30, 2016 and 2015, respectively, for the Company’s wholly-owned properties during each respective reporting period (“actual” portfolio metrics), as well as the eleven wholly-owned properties in the portfolio that were under the Company’s control during the three and six months ended June 30, 2016 and the corresponding period in 2015 (“same-store” portfolio metrics). Accordingly, the same-store data does not reflect the performance of the Crowne Plaza Hollywood Beach Resort, which was acquired through a joint venture in August 2007 and in which the Company had a 25.0% indirect interest during each respective reporting period prior to its acquisition of the remaining 75.0% interest in July 2015.

    Three Months Ended     Three Months Ended     Six Months Ended     Six Months Ended  
    June 30, 2016     June 30, 2015     June 30, 2016     June 30, 2015  
Actual Portfolio Metrics                                
Occupancy %     76.0 %     75.4 %     72.3 %     71.9 %
ADR   $ 143.65     $ 142.41     $ 144.47     $ 135.91  
RevPAR   $ 109.16     $ 107.33     $ 104.44     $ 97.65  
Same-Store Portfolio Metrics                                
Occupancy %     75.8 %     74.5 %     71.0 %     71.9 %
ADR   $ 141.17     $ 139.48     $ 137.66     $ 135.91  
RevPAR   $ 106.95     $ 103.92     $ 97.78     $ 97.65  
                                 

SOTHERLY HOTELS INC.
SUPPLEMENTAL DATA
(unaudited)

The following tables illustrate the key operating metrics for the three and six months ended June 30, 2016, 2015 and 2014, respectively, for each of the Company’s wholly-owned properties during each respective reporting period, irrespective of ownership percentage during any period.

Occupancy

  Q2 2016     Q2 2015     Q2 2014  
  YTD     YTD     YTD  
Crowne Plaza Hampton Marina
Hampton, Virginia
  65.8 %     62.2 %     55.7 %
    56.3 %     51.5 %     47.9 %
Crowne Plaza Hollywood Beach Resort*
Hollywood, Florida
  78.0 %     82.0 %     83.1 %
    83.3 %     84.7 %     86.3 %
Crowne Plaza Tampa Westshore
Tampa, Florida
  79.9 %     75.4 %     71.4 %
    81.8 %     78.9 %     78.4 %
DoubleTree by Hilton Jacksonville Riverfront
Jacksonville, Florida
  81.7 %     68.5 %     72.9 %
    79.3 %     69.4 %     69.4 %
DoubleTree by Hilton Laurel
Laurel, Maryland
  80.0 %     59.5 %     74.7 %
    62.3 %     53.5 %     62.7 %
DoubleTree by Hilton Philadelphia Airport
Philadelphia, Pennsylvania
  85.6 %     84.4 %     82.3 %
    79.3 %     82.2 %     80.8 %
DoubleTree by Hilton Raleigh Brownstone – University
Raleigh, North Carolina
  75.4 %     78.2 %     77.3 %
    72.4 %     74.5 %     75.2 %
The Georgian Terrace *?
Atlanta, Georgia
  74.3 %     74.6 %     82.3 %
    72.3 %     71.3 %     82.0 %
Hilton Savannah DeSoto ?
Savannah, Georgia
  77.8 %     85.9 %     83.8 %
    76.2 %     80.1 %     77.0 %
Hilton Wilmington Riverside
Wilmington, North Carolina
  83.2 %     80.7 %     82.8 %
    70.9 %     70.5 %     69.2 %
Sheraton Louisville Riverside
Jeffersonville, Indiana
  75.1 %     77.7 %     74.8 %
    63.1 %     70.0 %     67.3 %
The Whitehall
Houston, Texas
  48.9 %     74.6 %     79.1 %
    56.9 %     77.3 %     79.3 %
All properties weighted average*   76.0 %     76.0 %     77.7 %
    72.3 %     73.2 %     74.4 %
* Includes periods of non-ownership/partial ownership.
Property undergoing renovation during the current quarter.