Sotherly Hotels Inc. Reports Financial Results for the Q2

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.