Sotherly Hotels ((SOHO)) has held its Q1 earnings call. Read on for the main highlights of the call.
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Sotherly Hotels’ recent earnings call painted a mixed picture of optimism and caution. The company reported strong RevPAR growth and a promising recovery in urban markets, driven by strategic franchise agreements and planned renovations. However, challenges such as disruptions in Tampa, a decline in adjusted FFO, debt maturities, and macroeconomic uncertainties were also highlighted, impacting future guidance.
RevPAR Improvement
The company reported a 6.4% increase in RevPAR, driven by a similar rise in occupancy compared to the previous year. Excluding the Tampa property, which faced disruptions, RevPAR saw an even higher increase of 7.3%, showcasing the company’s robust performance in most markets.
Key Asset Performance
Sotherly Hotels highlighted significant gains in key assets, with the DoubleTree Resort in Hollywood, Florida, achieving an 11.9% increase in RevPAR. Hotel Ballast in Wilmington and The Whitehall in Houston also posted impressive RevPAR increases of 6.5% and 19.4%, respectively, underscoring the strength of these properties.
Urban Market Recovery
The recovery in urban markets was a focal point, with notable occupancy gains. The DoubleTree Philadelphia Airport experienced a remarkable 34.3% increase in RevPAR and a 38.7% rise in occupancy, indicating a strong rebound in urban travel demand.
Corporate Activity and Future Plans
Sotherly Hotels announced two new 10-year franchise agreements with Hilton in Philadelphia and Jacksonville. These agreements come with planned renovations totaling $26.1 million, reflecting the company’s commitment to enhancing its portfolio and guest experience.
Hotel EBITDA Growth
The company reported a 9.4% increase in Hotel EBITDA over the prior year, with margins improving by 100 basis points. This growth was achieved despite excluding one-time benefits from the previous year, highlighting the company’s operational efficiency.
Tampa Property Disruption
Operational disruptions at Hotel Alba in Tampa, caused by Hurricane Helene, continue to impact performance, particularly affecting elevator operations. This ongoing issue poses challenges for the property’s future performance.
Adjusted FFO Decline
Sotherly Hotels faced a decline in adjusted FFO, which decreased by approximately $0.7 million compared to the same quarter last year. This decline reflects some of the financial pressures the company is navigating.
Debt Maturity Challenges
The company is facing upcoming debt maturities for major assets in Atlanta and Hollywood. Broader uncertainty in the debt markets is affecting refinancing options, posing a challenge to the company’s financial strategy.
Macroeconomic Uncertainty
Emerging macroeconomic uncertainties, including policy changes, weakening consumer sentiment, and reduced government segment demand in Washington, D.C., are creating a cautious outlook for the company.
Potential Impact on Future Guidance
Given the macroeconomic challenges, Sotherly Hotels is adopting a more cautious view on operating fundamentals for the latter half of the year. This cautious approach is reflected in their forward-looking guidance.
Forward-Looking Guidance
During the earnings call, Sotherly Hotels reiterated its full-year guidance, projecting total revenue between $183.4 million and $188.2 million, a 2.1% increase at the midpoint over the prior year. Hotel EBITDA is expected to range from $48.8 million to $49.6 million, indicating a 5.2% increase. However, adjusted FFO is projected to decrease by 16.4%. The company plans significant capital expenditures, including $7.2 million on routine expenses and $11.4 million for renovations in Philadelphia and Jacksonville.
In summary, Sotherly Hotels’ earnings call reflected a balanced mix of strong performance in key areas and cautious optimism due to ongoing challenges. While RevPAR growth and urban market recovery are promising, disruptions in Tampa and macroeconomic uncertainties necessitate a prudent approach moving forward.