Sotherly Hotels Inc. (SOHO)·Q3 2024 Earnings Summary

Executive Summary

• Q3 revenue increased 3.9% year-over-year to $40.7M; Hotel EBITDA rose 6.8% to $8.1M, but diluted EPS was a loss of $0.29 versus a loss of $0.20 last year; Adjusted FFO turned slightly negative at $(0.02) per share .
• Management lowered full-year 2024 guidance for total revenue, Hotel EBITDA, RevPAR, and EPS, citing market conditions, refinancing impacts, and hurricane effects; Adjusted FFO guidance range narrowed with a lower high end .
• Operations were solid in urban markets with strong occupancy gains; ADR softened as leisure travelers showed price sensitivity; hurricanes Debby and Helene caused operational disruption, with Helene’s Tampa impact largely to be recovered via business interruption insurance in Q4 .
• Catalysts: clarity on BI insurance timing, continued urban occupancy recovery, and progress on Jacksonville refinancing/repositioning (Hotel Bellamy) and Philadelphia renovation plans .

What Went Well and What Went Wrong

What Went Well

• Urban markets stabilized: Philadelphia RevPAR +11% YoY on 15.7% occupancy gain; Houston’s Whitehall occupancy +60.4% YoY with RevPAR +51.9% and ~42% share index improvement .
• Hotel Alba (Tampa) outperformed despite storms: RevPAR +13.6% YoY driven by +14.5% occupancy; group revenue +54% YoY; RevPAR index +18.4% .
• Margin resilience: Hotel EBITDA margin improved by 55 bps YoY as occupancy gains offset rate declines and contract labor normalized; management expects relatively stable margins ahead .
• Quote: “Overall, our portfolio’s third quarter results driven by strong occupancy growth were in line with our expectations… lodging fundamentals for our portfolio has stabilized.” — Scott Kucinski .

What Went Wrong

• ADR pressure: ADR declined ~3% as leisure travelers exhibited price sensitivity amid slowing economic signals, causing rate headwinds portfolio-wide .
• Hurricane impact: Helene caused physical damage and operational disruption (Tampa), with most P&L impact expected in Q4; Debby also reduced business without insurance recovery; estimated ~$0.01 lost AFFO in Q3 from non-insurable storm impacts .
• Earnings mix: Despite revenue and Hotel EBITDA growth, net loss widened and Adjusted FFO dipped negative for the quarter (FFO/share $(0.04), Adjusted FFO/share $(0.02)) .

Financial Results

Note: Wall Street consensus estimates via S&P Global were unavailable at the time of writing; estimates comparison not shown.

Guidance Changes

Drivers: guidance update incorporated refinancing (Jacksonville, Savannah DeSoto second mortgage), market conditions, and hurricane Helene effects; BI insurance expected to offset EBITDA/FFO impacts for Tampa in Q4 if proceeds are received timely .

Earnings Call Themes & Trends

Management Commentary

• “Despite a slower-than-expected summer leisure travel season… moderation of leisure business was offset by strong group demand… we were very pleased with our managers’ ability to achieve solid margins and bottom line growth while gaining RevPAR share.” — David Folsom .
• “Hotel Alba sustained water intrusion… the hotel has remained open… full restoration is progressing… physical impact and business interruption are fully insurable events.” — Scott Kucinski .
• “We believe our repositioning strategy to a lifestyle hotel [Jacksonville] will allow the hotel to become more competitive… similar to the recent strategy employed at Hotel Alba in Tampa.” — David Folsom .
• “We’re projecting total revenue in the range of $177.8M to $180.1M… Hotel EBITDA $45.0M to $45.6M… Adjusted FFO $12.8M to $13.4M or $0.65 to $0.68 a share.” — Anthony Domalski .

Q&A Highlights

• Is portfolio back to 2019? Management emphasized remaining occupancy headroom; growth is expected from further occupancy recovery rather than rate expansion .
• Hurricane quantification: ~$0.01 lost AFFO in Q3 from storms excluding insured Tampa impacts; BI proceeds expected to make Q4 EBITDA/FFO whole, with potential timing lag of 30–90 days .
• DeSoto second mortgage: $5M second mortgage used to fund major brick façade restoration; leverage remains low on asset .

Estimates Context

• S&P Global consensus estimates for Q3 2024 EPS/Revenue/EBITDA were unavailable at the time of writing; therefore, beat/miss versus estimates cannot be assessed.
• Given guidance reductions and ADR softness, sell-side estimates may need to adjust lower for FY24 revenue, RevPAR, Hotel EBITDA, and EPS to reflect updated ranges and leisure pricing dynamics .

Key Takeaways for Investors

• Mix shift matters: urban occupancy recovery is driving share gains and margin stabilization despite ADR headwinds; watch business transient/group momentum into Q4/Q1 .
• Guidance reset: Full-year ranges were lowered across revenue, EBITDA, RevPAR, and EPS; Adjusted FFO high-end trimmed — prioritize companies executing balance sheet actions and margin discipline in a softer rate backdrop .
• Storm impact is largely insured: Expect BI proceeds to offset Q4 EBITDA/FFO at Tampa; any timing lag is a near-term noise factor rather than structural impairment .
• Balance sheet actions continue: Jacksonville refinancing and lifestyle relaunch (Hotel Bellamy) and Philadelphia renovation underpin medium-term rate/RevPAR potential once projects complete .
• Watch ADR vs occupancy trade-off: Management is leaning into occupancy recovery with expense control; sustained ADR softness could cap flow-through — monitor pricing power in South Florida and coastal markets .
• Preferred dividends current pay continues; cumulative arrears remain outstanding — equity holders should track capital allocation as mortgage markets evolve .
• Near-term trading: Stock may be sensitive to BI insurance confirmation and Q4 print clarity; medium-term thesis depends on urban normalization and successful Jacksonville/Philadelphia execution .