8-K: Sotherly Hotels Inc. Reports Mixed Financial Results for Q4 2024, Cautiously Optimistic for 2025

Sotherly Hotels Inc. reports increased total revenues and Hotel EBITDA for Q4 2024 and full year 2024, but also reports increased net losses attributable to common stockholders and decreased Adjusted FFO.

Summary

• Sotherly Hotels Inc. reported its financial results for the fourth quarter and year ended December 31, 2024.
• Total revenues increased to $44.0 million for the quarter and $181.9 million for the year.
• Net loss attributable to common stockholders increased to $3.0 million for the quarter and $6.7 million for the year.
• Hotel EBITDA increased to $10.7 million for the quarter and $46.8 million for the year.
• Adjusted FFO attributable to common stockholders and unitholders decreased to $2.0 million for the quarter and $14.3 million for the year.
• The company's RevPAR increased by 2.6% to $108.99 for the quarter and 3.7% to $119.26 for the year.
• The company provided 2025 guidance, projecting total revenues between $183.4 million and $188.2 million and RevPAR between $119.77 and $122.89.
• The company had $28.7 million in available cash and cash equivalents as of December 31, 2024, with $21.4 million reserved or restricted.
• The company's outstanding debt was $319.3 million at a weighted average interest rate of 5.88%.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While revenue and Hotel EBITDA increased, the net loss and decrease in Adjusted FFO temper the positive aspects. The outlook for 2025 is cautiously optimistic.

Positives

• Total revenues increased for both the quarter and the year.
• Hotel EBITDA increased for both the quarter and the year.
• RevPAR increased for both the quarter and the year.
• The company successfully navigated the mortgage markets by completing refinancings or extensions of mortgages at several of its hotels.
• The company is encouraged by ongoing improvements in demand at many of its markets that were slow to recover following the pandemic.

Negatives

• Net loss attributable to common stockholders increased for both the quarter and the year.
• Adjusted FFO attributable to common stockholders and unitholders decreased for both the quarter and the year.
• The average daily rate (ADR) decreased for both the quarter and the year.
• The company had a significant amount of cash reserved or restricted as of December 31, 2024.

Risks

• National and local economic and business conditions could affect occupancy rates and revenues at the company's hotels.
• The hotel industry is subject to competition and new supply of hotel rooms.
• Increases in wages, energy costs, and other operating costs could negatively impact the company's profitability.
• The company's level of indebtedness could impact its ability to meet covenants in its debt agreements.
• Adverse weather conditions, including hurricanes, could negatively impact the company's operations.
• Impacts on the travel industry from pandemic diseases, including COVID-19, could negatively impact the company's operations.
• The availability and terms of financing and capital could impact the company's ability to grow.
• The company's ability to maintain its qualification as a REIT could be impacted by legislative/regulatory changes.

Future Outlook

Sotherly Hotels anticipates total revenues between $183.4 million and $188.2 million, net loss attributable to common stockholders between $8.7 million and $7.8 million, Hotel EBITDA between $48.8 million and $49.6 million, and RevPAR between $119.77 and $122.89 for 2025.

Management Comments

• Dave Folsom, President and Chief Executive Officer of Sotherly Hotels Inc., commented, 'The fourth quarter continued the positive trends we witnessed in 2024, as both total revenues and Hotel EBITDA saw incremental increases over the fourth quarter of 2023.'
• Folsom also noted that Sotherly successfully navigated the mortgage markets and continues its efforts in executing life cycle improvements.
• Folsom stated that Sotherly is encouraged by ongoing improvements in demand at many of its markets that were slow to recover following the pandemic.

Industry Context

Sotherly's focus on upscale to upper-upscale full-service hotels in the Southern United States positions it to benefit from regional economic growth and tourism trends. The company's ability to maintain and grow RevPAR is crucial in a competitive lodging market. The company's focus on refinancing and extending mortgages is important in the current interest rate environment.

Comparison to Industry Standards

• Comparing Sotherly's RevPAR growth of 3.7% for the year to industry benchmarks, such as those reported by STR (Smith Travel Research), provides context on its performance relative to competitors like Park Hotels & Resorts and Host Hotels & Resorts.
• Sotherly's Hotel EBITDA margin of 26.1%-26.4% projected for 2025 can be compared to the average EBITDA margins of similar REITs to assess its operational efficiency.
• The company's debt levels and weighted average interest rate of 5.88% can be benchmarked against other hotel REITs to evaluate its financial risk and capital structure.
• The company's focus on the Southern United States can be compared to other REITs with similar geographic focuses such as Apple Hospitality REIT.

Stakeholder Impact

• Shareholders will be impacted by the increased net loss and decreased Adjusted FFO, but may be encouraged by the increased revenue and Hotel EBITDA.
• Employees may be impacted by the company's efforts to improve operational efficiency.
• Customers may benefit from the company's efforts to execute life cycle improvements at its hotels.
• Creditors will be impacted by the company's level of indebtedness and its ability to meet covenants in its debt agreements.

Next Steps

• The company will conduct its fourth quarter 2024 conference call for investors and other interested parties at 10:00 a.m. Eastern Time on Thursday, March 13, 2025.
• The company continues its efforts in executing life cycle improvements in conjunction with the renewal of Hilton franchises at its DoubleTree locations in Philadelphia and Jacksonville.
• Restoration of post Hurricane Helene damage at the Hotel Alba in Tampa continues to proceed.

Key Dates