Sotherly Hotels Inc.

in accordance with Reggie's 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 results that 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 Scott.

Thanks, Mac. Good morning, everyone. I'll start off today's call with a review of our portfolio's key operating metrics for the fourth quarter. Looking at the fourth quarter results for the actual portfolio compared to 2023, RevPAR increased 2.9%, driven by a 7% increase in occupancy and a 3.7% decrease in ADR. Stripping out Tampa from the results due to hurricane impact, the fourth quarter's actual portfolio RevPAR increased a healthy 5.8% compared to prior year. Looking at the fourth quarter results for the actual same-store portfolio relative to 2019, RevPAR increased 3.8%. driven by ADR growth of 7.9%, while occupancy was down 3%. For the full year 2024, REVPAR performance represents an increase of 3.5% over the same period in 2023, driven by a 6.1% increase in occupancy and a 2.5% decrease in rate. Again, stripping out Tampa from the results due to hurricane impact, the annual actual portfolio REVPAR increased 3.9% compared to 2023 levels. Looking at the annual results for the same store actual portfolio relative to 2019, REVPAR was up 1.3%, driven by ADR growth of 8.6% and occupancy decline of 6.8%. Overall, our portfolio's fourth quarter results, driven by strong year-over-year occupancy growth, were ahead of our budgeted expectations. Occupancy growth was especially strong in our slower-to-recover urban markets, a positive indicator that lodging fundamentals have normalized following the uneven recovery period following the pandemic. As part of this normalization of lodging fundamentals, rates have settled down a bit following the revenge travel trends of the prior two years, with an ADR decline of 2.5%, partially offsetting the quarter's 6.1% gain in occupancy. Hurricane Helene was struck during the third quarter, contributed to significant operational impact during the fourth quarter of 2024. As a result of the hurricane storm surge, Hotel Alba sustained water intrusion on the first floor of the hotel, causing damage to furniture, finishes, and equipment in public areas and guest rooms, as well as some building systems. Due to our operating team's expeditious restoration efforts following the storm, the hotel remained fully operational. To date, the work associated with this fully insured casualty has been efficiently executed, and only final FF&E replacements and elevator work remain to be accomplished. We anticipate the impact of operations at Hotel Alba as a result of Hurricane Helene to continue through the second quarter of this year. From an accounting perspective, the company's headline quarterly operating metrics, including Occupancy, ADR, and REVPAR, reflect the impact of Hurricane Helene on Hotel Albus operations prior to business interruption insurance proceeds, while the company's revenue and profitability metrics include business interruption insurance credits. Looking at some highlights across the portfolio, The Doubletree Resort in Hollywood, Florida posted strong year-over-year results during the quarter, improving REVPAR by 13.8%, fueled by a 13.4% increase in occupancy and a slight increase in rate. The hotel's improvement in occupancy, which led to greater ancillary revenue capture, was a result of stronger-than-expected weekend demand, as well as improved bookings. Driven by a 13% increase in occupancy share, the Doubletree easily outperformed its competitive set during the quarter, growing its REVPAR index by 8.5%. The Whitehall in Houston continued to build momentum during the fourth quarter, growing REVPAR by nearly 50%, driven by occupancy growth of 46.1% and rate growth of 2.7%. The hotel's improved performance was predominantly driven by growth in the leisure transient segment. The Whitehall easily outperformed its competitive set during the quarter, gaining more than 30% REVPAR share, fueled by strong occupancy share improvement of nearly 34%. Our Doubletree Hotel in Philadelphia continued its streak of improved performance during the fourth quarter, posting a 9.4% increase in rev far, driven by a 16.2% increase in occupancy. The hotel's sub-market continues to trend positively during the quarter, benefiting from increased demand from special events, as well as improved airport traffic. Meanwhile, the hotel's strong occupancy growth, which is driven by increased business and group travel, contributed to a 5.2% rev far share gain during the fourth quarter. Hotel Ballast in Wilmington posted strong year-over-year results, growing RevFar by 7.1%, which was fueled by a 1.9% increase in occupancy and a 5% increase in rate. Hotel Ballast's well-balanced approach, highlighted by group with strong banquet and catering contribution, continues to drive the hotel's revenue picture. Looking at profitability metrics for the portfolio, while hotel EBITDA margin experienced a slight year-over-year decline, The prior year included a $700,000 grant payment at the Georgia Terrace. Stripping out this one-time event, fourth quarter hotel EBITDA margin improved by 150 basis points over prior year, a commendable effort considering the portfolio's moderate rate decline during the quarter. The portfolio's occupancy growth trend has allowed our managers to drive additional ancillary revenue while also taking advantage of economies of scale, especially in our slower-to-recover markets, in order to drive flow-through. Moving forward, we expect normalized staffing and amenity levels along with stabilized wage costs to result in relatively stable margins for the portfolio. Turning to corporate activity, the company continues planning and preparation for two upcoming PIP renovations. In Philadelphia, we have executed a new 10-year franchise agreement with Hilton for the Doubletree flag. The acquired PIP renovation has an $11.5 million budget with an expected completion date of May 1, 2026. In Jacksonville, the company executed a new 10-year franchise agreement with Hilton to convert the hotel to a soft branded concept under the name Hotel Bellamy. This $14.6 million renovation has an expected completion date of January 1st, 2027. I will now turn the call over to Tony.

Thank you, Scott. Reviewing performance for the period ended December 31st, 2024. The fourth quarter total revenue was approximately $44 million, representing an increase of 4.3% over the same quarter of 2023. Year to date, total revenue was approximately $182 million, representing an increase of 4.6% over full year 2023. Hotel EBITDA for the quarter was approximately $10.7 million, representing an increase of 3.6% from the same quarter last year. Year to date, hotel EBITDA was approximately $46.8 million, representing an increase of 4.5% over full year 2023. For the quarter, adjusted FFO was approximately $2 million, representing a decrease of about $850,000 from the same quarter in 2023. Year to date, adjusted FFO was approximately $14.3 million, representing a decrease of approximately $250,000 from the prior year. Please note that our adjusted FFO excludes charges related to the early extinguishment of debt, unrelated gains and losses on derivative instruments, charges related to aborted or abandoned securities offerings, ESOP and stock compensation expense, as well as other items. Hotel EBITDA excludes these charges, as well as interest expense, interest income, corporate, general, and administrative expenses, realized gains and losses on derivative instruments, and the current portion of our tax provision as well. Please refer to the earnings released for additional detail.

Looking at our balance sheet as of December 31, 2024, company had total cash of approximately $28.7 million, consisting of unrestricted cash and cash equivalents of approximately $7.3 million, as well as approximately $21.4 million, which was reserved for real estate taxes, insurance, capital improvements, and certain other items. At the end of the quarter, we had principal balances of approximately $319.3 million in outstanding debt. We had an average interest rate of 5.88%.

Approximately 84.5% of the company's debt carried a fixed rate of interest when taking into account the company's interest rate hedges. We anticipate routine capital expenditures for the replacement and refurbishment of of furniture, fixtures, and equipment will amount to approximately $7.2 million for calendar year 2025. Significant portion of our product improvement plans at the Doubletree by Hilton Philadelphia Airport and the Doubletree by Hilton Jacksonville will occur during the year. With anticipated capital expenditures related to these projects to total approximately $11.6 billion. Turning to guidance. We're publishing full-year guidance for 2025, accounting for current and expected performance within the portfolio and taking into account market conditions. We're projecting total revenue in the range of $183.4 to $188.2 million for full-year 2025. At the midpoint of this guidance, this represents a 2.1% increase over the prior year, which I'll leave it as projected in the range of $48.8 to $49.6 million, And at the midpoint of the guidance, this represents a 5.2% increase over the prior year. Adjusted FFO is projected in the range of $11.5 to $12.3 million, or 57 to 61 cents per share. And at the midpoint of the guidance, this represents a 16.4% increase compared to the prior year. And I'll now turn the call over to Dave.

Thank you, Tony. Good morning, everyone. We were pleased with our portfolio's fourth quarter results, which capped off a productive year characterized by improved operating fundamentals and continued occupancy growth. Our portfolio's 6.1% occupancy improvement during the fourth quarter was particularly impressive given the challenges faced at our Tampa Hotel following the major hurricane at the end of the third quarter. Additionally, the sustained recovery at two of our urban hotels in Houston and Philadelphia was an encouraging sign for the portfolio. The noteworthy rebound in demand at our Doubletree Hotel in Hollywood, Florida, which was driven by a balance of strong weekend leisure pickup and weekday group business was also a positive catalyst for our portfolio during the quarter. Despite some softening in rate during the quarter, we continue to be encouraged with our manager's ability to utilize streamlined revenue management strategies in order to drive strong top line growth gain REVPAR's share versus our competitive sets while delivering solid margins. As a result of these initiatives, we were able to achieve our full year guidance targets for revenue, hotel EBITDA, and adjusted FFO, which were initiated last March. Occupancy growth continued during the quarter with many of our hotels delivering double-digit occupancy growth over the prior year.

The Whitehall in Houston was a standout performer, as its re-energized sales effort drove 46% of the airport to deliver excellent occupancy growth of 16% over the prior year, as the hotel outperformed its comp set during the quarter.

Even with rate softness in this market, our manager was able to significantly improve that hotel's profitability relative to the prior year, growing hotel EBITDA by 74% for the quarter. We believe there is still significant opportunity for growth at this hotel as its occupancy remains nearly 600 basis points below 2019. As one of the largest revenue contributors in the portfolio, the improved performance at our Doubletree Hotel and Holiday Inn during the quarter was especially encouraging, with occupancy growth of 13.4% and hotel EBITDA growth of 15% over prior year. Group revenue growth was also strong at this hotel, growing 15% over the prior year. Looking at the total portfolio, Group continues to be the strongest driver of growth for the portfolio, expanding by 5.9% for full year 24, with additional upside opportunities for 2025. Looking at our balance sheet initiatives throughout 2024, Southerly continued to successfully navigate the mortgage market despite ongoing challenges in the debt market from a borrower perspective. During the year, we completed refinancings or extensions at several hotels, including the Doubletree at the Philadelphia Airport, Hotel Alba in Tampa, and the Doubletree Hotel in Jacksonville, Florida. Concurrently, the company continues its efforts in executing lifecycle improvements in conjunction with the renewal of Hilton franchises at its Doubletree locations in Philadelphia and Jacksonville. We believe the necessary upgrades to these properties will allow our managers to drive increased profitability through rate capture to deliver long-term value. Looking ahead, we will continue to conservatively approach upcoming debt maturities for our portfolio, which are spread evenly over the near term. Looking at 2025, we continue to be cautiously optimistic on the lodging industry, as we believe upscale and upper upscale hotels will outperform the broader market this year, a positive indicator for our portfolio's growth prospects. Despite the uncertain macro environment so far this year, we have been pleasantly surprised by our portfolio's operating fundamentals, with January's results finishing well ahead of expectations. Preliminary January REVPAR highlighted by continued improvement at our urban hotels, coupled with strong demand at our South Florida hotels, showed a 12.8% improvement over prior year. Full year 2025 REF PAR for our portfolio is forecast at a range between 103 and 105% of full year 2024 REF PAR. Looking ahead, we believe that our portfolio of well-positioned hotels, driven by occupancy growth, will continue to outperform. And with that, we will open the call up for questions.

Thank you very much. ...operating costs, yet FFO looks to decline. So, just want to get a bit more color on this. Is this because of refinancing activities or interest?

And also...

You know, what do you think the trajectory of FFO is if, you know, operations are improving but FFO is going down? This is Tony Alex. You know, we're seeing improvements in revenue and EBITDA, as you said, but, you know, we have a bevy of loans and the that we originated five to 10 years ago in the 45% interest rates that we're now having to refinance. And so we're going to see interest costs creep up. We saw it creep up last year. We're seeing it creep up again in 2025. And I think until we complete these refinances, you're going to slowly plateau as we go. complete all these refinances of those legacy mortgages. Okay. And then just following up on the AK you guys filed last month from NASDAQ on the stock to get above the dollar threshold or during that period if the if the stock price, uh, rises above that dollar, it'll cure itself. Okay. And then, uh, as far as the, uh, hotels that you're doing the repairs on, I think the Alba, is there anything in guidance for insurance for coverings? Like, is any part of FFO, uh, enhanced by just recovering insurance dollars? Alex, this is Scott speaking. Our guidance assumes normal operations at the hotel where we've had business interruption proceeds from our insurance carriers to date. We've been doing those calculations on a monthly basis. So as I think I mentioned in my comments, Q4 of last year, you know, our business that are option proceeds. So the guidance is just assuming, you know, we're fully made whole. Okay. So basically what you're saying is the number for the guidance for 2025 is a good run rate for the portfolio.

It's not being enhanced at all by it. Okay. Okay. And then finally, okay, cool. And then just last question, you know, you mentioned about refinancing this year, you know, obviously debt load on the company, you know, every asset encumbered, uh, given the study rebounding in asset values, as you guys contemplate refinancing debt, especially to try and grow FFO, is there, you know, any thought, any of the assets that have, you know, a healthy amount of equity that, that you could see a path to maybe sell one or two, start to unencumber some of the other assets with the excess proceeds and try to get this company in a better spot leverage-wise so that we can talk more about growing the equity. Is that something that you think is feasible or reasonable as you think about refinancing?

Yeah, I mean, we're always looking at options on how to manage cash and manage the portfolio structurally. I don't think we've really looked that hard at selling assets for the purpose you're articulating. I mean, I do believe that as fundamentals continue to go up, hopefully that we're going to get better results on the refinancing picture. I mean, to date, interest rates have come down since last year. Some of the other structural aspects of refinancing and debt mortgaging as it is are still pretty sticky with debt yields and debt service coverage ratios. But our goal right now is to take each one of these mortgages that are coming due with legacy loan rates and legacy loan structures and get the best outcome we can from the markets. And I think that's the strategy we've looked at with the board, and that's what we're going to pursue.

Okay. Listen, thank you for your time. All right, thank you very much. Thank you very much. As a further reminder, if you would like to raise a question, please press star, or follow by 1 on your telephone keypad now. We will allow just a moment for any questions to filter in.