Sotherly Hotels Inc.
Q1 2015 Earnings Call Transcript

Published: 12 May 2015

[Operator:]

Good day and welcome to the Sotherly Hotels Incorporated First Quarter Earnings Call and Webcast. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Scott Kucinski, Vice President, Operations and Investor Relations. Please go ahead, sir.

[Scott Kucinski:]

Thank you, and good morning, everyone. Welcome to Sotherly Hotels’ first quarter earnings call and webcast. Dave Folsom, our President and COO, will begin today’s call with a view of the company’s quarterly activities and a review of portfolio performance. Turning to Domalski, our CFO, will provide our key financial results for the quarter and review our 2015 guidance. Drew Sims, our Chairman and CEO, will conclude with an update on strategic objectives. We’ll then take questions. If you have not received a copy of the earnings release, you may access it on our website at www.sotherlyhotels.com. In the release, the company has reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. Any statements made during this conference call, which are not historical, may constitute forward-looking statements. Although, we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that these expectations will be attained. Factors and risks that can cause actual result to differ materially from those expressed or implied by forward-looking statements are detailed in today’s press release and from time to time in the company’s filings with the SEC. The company does not undertake a duty to update or revise any forward-looking statements. With that, I’ll turn the call over to Dave.

[Dave Folsom:]

Thank you, Scott, and good morning, everybody. I’d like to begin today’s call by reviewing our portfolio’s performance for the quarter. RevPAR for the portfolio was $87.87, an increase of 8.3% over prior year, with a 6.7% increase in rate and occupancy was up 1.5%. Hotel EBITDA increased 23.7% to $7.8 million for the quarter. Our portfolio continues to benefit from healthy markets and strong penetration within those markets, specifically in terms of rate share where our portfolio picked up 30 basis points over its competitive set. Group rate growth was a major catalyst in the quarter, as that segment saw a 9.7% increase in rate coupled with a 2% gain in occupancy across our portfolio. Looking at some individual property highlights, at the Crowne Plaza Jacksonville Riverfront, we saw RevPAR growth of 15.8% for the quarter with our hotel gaining 330 basis points in market share. This marks the fifth consecutive of double-digit RevPAR growth for the hotel. This asset should continue to see the benefit of the ongoing renovation and repositioning efforts as we work towards the third quarter conversion to the Doubletree Flag. The Sheraton Louisville Riverside gained 14.6% in RevPAR for the quarter, gaining 160 basis points in share in the robust low level market. The hotel achieved 10.2% in ADR growth in the quarter. In Atlanta, the Georgian Terrace continues to produce stellar results as we dive deeper into our repositioning plan that commenced last Spring following our acquisition. The hotel achieved a strong 7.3% RevPAR increase, compared to the market 6% gain, which was a 130 basis point gain in share. Most noteworthy was the hotels’ 16% gain in rate as we adjusted pricing of our product in occupancy levels in order to achieve a higher quality revenue dollar. We should continue to see the benefit of the guest room renovation project, which is scheduled for completion early next year. Turning to our other corporate developments and activities, last week announced that the company closed on the refinancing of the Georgian Terrace in Atlanta. The $47 million first mortgage with Bank of America carries a 4.4% interest rate on a tenure term, which amortizes over a 30-year schedule. The proceeds from the loan we used to repay the existing mortgage, partially fund the ongoing guest room renovation projects, and for general corporate purposes. With the completion of this refinancing over 80% of our portfolios debt now carries a fixed interest rate. Last month the company announced a 7% increase to its quarterly dividend to 7.5% per share, which equates to a dividend yield of approximately 3.8% based on our current stock price. With that I’ll turn the call over to our CFO, Tony Domalski.

[Tony Domalski:]

Thank you Dave. Reviewing performance for the period ended March 31, 2015. Total revenue for the quarter was approximately $31 million, representing an increase of 23.9% over the same quarter a year ago. Adjusted EBITDA was approximately $7.2 million for the quarter, representing an increase of 19.5% over the same quarter a year-ago. Adjusted FFO was approximately $3.2 million for the quarter or $0.25 per share, representing an increase of almost 8% over the same quarter a year-ago. Please note that both our adjusted FFO and adjusted EBITDA exclude unrealized gains or losses on hedging activities and derivatives, charges related to the early extinguishment of debt, acquisition charges, changes in the deferred portion of our income tax provision, as well as other items. Please refer to our earnings release for additional detail. Looking at our balance sheet, as of March 31, 2015, the total book value of our assets was approximately $301.5 million. This includes net investment in hotel properties of approximately $261.1 million and approximately $1.9 million for the company’s joint venture investment in the Crowne Plaza Hollywood Beach Resort. The company had total cash of approximately $20.3 million, consisting of unrestricted cash and cash equivalents of approximately $16.1 million, as well as approximately $4.2 million, which was reserved for real estate taxes, capital improvements, and certain other expenses. As of March 31, 2015, the company had approximately $257 million in outstanding debt at a weighted average interest rate of 5.27%. Total stockholder and unitholder equity was approximately $27.6 million at the end of the quarter of which stockholder equity was approximately $23.5 million with approximately 10.6 million shares outstanding. Unitholder’s equity was approximately $4.1 million with approximately 2.6 million limited partnership units outstanding. At the end of the first quarter, our interest-bearing debt was approximately $95,250 per room. Also at the end of the first quarter, the ratio of debt to total asset value as defined in the indenture agreements to our senior unsecured notes was 52.4%. Turning to guidance. We were maintaining our previous guidance for 2015, which accounts for current and expected performance within our portfolio and is predicated on RevPAR growth of 5.5% to 7.5% for the consolidated portfolio. For the year, we’re projecting total revenue in the range of $132.2 million to $135.5 million. At the midpoint of the range, this represents an 8.9% increase over last year’s total revenue. Hotel EBITDA is projected in the range of $35.9 million to $36.8 million. And at the midpoint of the range, this represents a 12.8% increase over last year’s hotel EBITDA. And adjusted FFO is projected in the range of $15.9 million to $16.8 million or $1.20 to $1.28 per share. At the midpoint of the range, this represents a 14.8% increase over last year’s adjusted FFO per share. Additional details can be found in the outlook section of our earnings release. And I will now turn the call over to Drew.

[Drew Sims:]

Thank you, Tony. 2015 has gotten off to a solid start as the lodging industry continues to display prolonged strength with few visible headwinds. As Dave previously mentioned, the group segment has been a major catalyst recently. We expect this trend to only grow stronger, which will bode well for our full service portfolio. We remain focused on producing favorable results from our existing portfolio through aggressive asset management and revenue management as well as proven capital investments. We are currently engaged in several repositioning projects across the portfolio that we expect to generate future organic growth and create significant value for our shareholders. We continue to monitor acquisition opportunities in high-priority target markets and are attracting several assets. We also continue to consider the appropriate time to sell certain assets in the portfolio and we’ll act to maximize value for our shareholders. We remain focused on managing our capital structure and endeavor to lock in fixed rate mortgages and extend debt maturities, as evidenced by our recent refinancing of the Atlanta asset. We will continue to this effort throughout the year. Last month, we increased our dividend to $0.075 per share. This marks the 8th increase in the last 12 quarters. We’ve increased our dividend nearly 67% in the past 15 months. We continue to have a bias towards future increases in a steady and measured fashion. Our three month total return is approximately 8%, tops among all lodging REITs, while we’ve also remained the top performer over the past five years with a total return of nearly a 160%. However, we continue to believe that there is a substantial disconnect between the value of our assets and our stock price and therefore believe SOHO could be a compelling investment opportunity. We will now open the call up for questions.

[Operator:]

Thank you. We will now begin the question and answer session. [Operator Instructions] Our first question comes from Carol Kemple with Hilliard Lyons.

[Carol Kemple:]

Good morning.

[Drew Sims:]

Good morning, Carol.

[Carol Kemple:]

What helped group rate in the quarter. Are company starting to sell better or is it more travel groups or what’s kind of leading to that growth?

[Drew Sims:]

I would say that our marketing efforts have been a little better, little sharper than they have been in the past. I would also say that we’re in that part of the economic cycle where business is more focused on spending some travel dollars than previously. So I think it’s currently a combination of both.

[Carol Kemple:]

Alright, and then, you’ve talked about tracking acquisitions for the last several calls, what are you seeing with acquisitions you’ve been looking at? Have they been selling at prices that are just too high or what’s kind of kept you from bidding on these properties?

[Drew Sims:]

I think that’s fair. We have bid actually on two projects in the last six years and put out a price that we thought was consistent with the future value creation for our shareholders and we didn’t win the bids and we are not going to get too far out over our skis and so we’re trying to be disciplined in our approach and quite frankly, we think that some the competitors are overpaying for the assets. So we’ve kind of stepped back. We continue to work on other projects. A couple of them are off market so that they’re not out there in an open bid situation. So we’ll see what happens. We’re hopeful.

[Carol Kemple:]

Okay, thank you.

[Operator:]

[Operator Instructions] There appears to be no other questions at the moment. I would like to turn the conference back over to management for any closing remarks.

[Drew Sims:]

I’d like to thank you all for joining us this quarter. It’s always easier when we have a great quarter. So there is not a lot of questions. I would say our annual meeting was very similar and that we had a great year last year and we had very few questions from our shareholders. So thank you all. We’ll talk to you in July.

[Operator:]

Thank you. The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.