Sotherly Hotels Inc (SOHO) 2014 Q2 法說會逐字稿

Good morning and welcome to the Sotherly Hotels second-quarter earnings call. All participants will be in 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. Kucinski. Please go ahead.

Thank you and good morning, everyone. Welcome to Sotherly Hotels' second-quarter earnings call and webcast. Dave Folsom, our President and COO, will begin today's call with a review of the Company's quarterly activities and a review of portfolio performance. Tony Domalski, our CFO, will provide our key financial results for the quarter and update 2014 guidance. Drew Sims, our Chairman and CEO, will conclude with an update on our strategic objectives. We will then take questions.

If you did not receive a copy of the earnings release, you may access it on our website at www.sotherlyhotels.com. In the release the Company is 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 expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that these expectations will be attained. The factors and risks that can cause actual results 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 will turn the call over to Dave.

Thank you, Scott. Good morning, everybody. I would like to start today by reviewing the Company's performance for the quarter. The second quarter marks the Company's best quarter on record. The lodging industry continues to enjoy a strong recovery, driving RevPAR and hotel EBITDA growth for us on a same-store basis. It addition to this tailwind the Company is starting to reap the benefits and accretive results from our recent acquisitions in Houston and Atlanta.

We also continue to see margin expansion across the majority of our portfolio due to strong ADR growth. So looking at our portfolio performance for the quarter, consolidated RevPAR for the portfolio increased 9.7% with a 4.9% increase in rate, and occupancy was up 4.6%. Same-store RevPAR increased 7.5%, driven by a 4.2% increase in rate and a 3.2% increase in occupancy. Hotel EBITDA margins expanded 116 basis points to 32.9% on a same-store basis.

For the quarter RevPAR for our markets was up 7.6%. Our portfolio performed in line with our markets on a RevPAR fair share basis while increasing rate share by 70 basis points in the quarter as we continue to focus on the quality of our revenue and drive our rates across the portfolio. On balance, our hotels are operating right at 100% of their fair share indices.

Our two new acquisitions in Houston and Atlanta are strategically important and conform to Sotherly's long-term goals with both assets being well-known properties located in high-demand, high-barrier-to-entry central business district locations in two of the largest markets in the southern United States. Houston continues to be one of the strongest domestic markets in the United States. On a 12-month RevPAR look-back basis the market is up over 10% and during the same period our hotel captured nearly 300 basis points in RevPAR fair share. For the quarter the Houston market was up over 5%, with our new hotel matching this quarterly increase.

Although we have found the Georgian Terrace in Atlanta for only one quarter, its operating and financial performance has eclipsed our original expectations. Through a combination of diligent asset management efforts, enhanced revenue strategies, expense control, and changes to the hotel's food and beverage offerings, performance has been excellent. The Atlanta lodging market has also seen remarkable growth throughout the year, ranking among the top in the United States. We expect this to be a fantastic investment for our shareholders. In the quarter, the hotel was added to the prestigious Southern Living magazine's hotel collection, a select group of independent four- and five-star hotels, inns and resorts that span 18 southern states, offering the best in authentic Southern hospitality. In summary, these recent additions to our portfolio have exceeded our expectations thus far and we could not be more pleased with the results.

Looking at other highlights across the portfolio, for the quarter we continue to see substantial market improvement in Tampa, where RevPAR was up 18% in the quarter with our hotel gaining 80 basis points in share. At the Sheraton in Louisville our hotel gained 2600 basis points in share over the competitive set, which was up 7% during the period. In Savannah market performance has consistently been up 8% for the prior 12 months and again in this past quarter. Our Hilton Savannah DeSoto captured 180 basis points in share in the past 12 months and 770 basis points in share in the quarter. Finally, in Jacksonville the market saw a significant 12.5% RevPAR increase in the quarter while our hotel captured 500 basis points in share.

Turning to other corporate developments and activities, last month the Company increased its quarterly dividend by 30%. This marks the fifth increase in the past seven quarters, during which time we have increased our dividend 117%. Our current yield is approximately 3.4%, above the average of all of our lodging peers. We continue to have a bias to raise our dividend in a measured and sustainable way.

In the quarter we modified and extended the mortgage on the Hampton Crowne Plaza Hotel in Hampton, Virginia. The note was paid down to $5 million. The term was extended for two years, and the rate, which had previously been floating, was fixed at 5%.

On July 9 we established an at-the-market equity offering program by filing with the SEC a prospectus supplement to the Company's existing effective Form S-3 shelf registration statement. The ATM is a capital raising program common and to REITs which allows Sotherly to sell limited amounts of its common stock at the time and price of our choosing, pursuant to and subject to a sales agency agreement. We believe the ATM, with its inherent flexibility, is a valuable tool that, much like other REITs, we wish to maintain both now and in the future.

So with that, I will turn the call over to our CFO, Tony.

Thank you, Dave. Reviewing performance for the period ended June 30, 2014, total revenue for the quarter was approximately $36.3 million, representing an increase of 43.9% over the same quarter a year ago. Adjusted EBITDA was approximately $10.5 million for the quarter, representing a 44% increase over the same quarter a year ago. Adjusted FFO was approximately $6.3 million for the quarter, or $0.48 per share, representing an increase of 31% of the same quarter a year ago.

The Company reported consolidated net income of approximately $2.2 million for the quarter or an increase of 65.3% 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 June 30, 2014, the total book value of our assets was approximately $301.4 million. This includes net investment in hotel properties of approximately $261.2 million and approximately $2.1 million for the Company's joint venture investment in the Crowne Plaza Hollywood Beach Resort. The Company had total cash of approximately $24.3 million consisting of cash and cash equivalents of approximately $17.9 million as well as approximately $6.4 million which was reserved for real estate taxes, capital improvements, and certain other expenses.

As of June 30, the Company had approximately $251.4 million in outstanding debt at a weighted average interest rate of 5.46%. It also had total stockholder and unitholder equity of approximately $33.9 million, of which stockholder equity was approximately $27.9 million with approximately 10.4 million shares outstanding and unitholders' equity was approximately $6 million with approximately 2.8 million limited partnership units outstanding. At the end of the second quarter our interest-bearing debt was approximately $93,180 per room. And also at the end of the second quarter the ratio of debt to total asset value as defined in our indenture agreement to the secured or senior unsecured notes was 55.2%. Turning to guidance, we are updating our guidance for 2014 to account for current and expected performance within our portfolio.

For the year we are projecting total revenue in the range of $120.4 million to $123 million. At the midpoint of this range this represents a 36.2% increase over last year's total revenue. Hotel EBITDA is projected in the range of $31.5 million to $32.7 million. And at the midpoint of this range it represents a 38% increase over last year's hotel EBITDA. And adjusted FFO is projected in the range of $14.4 million to $15.7 million or $1.10 to $1.20 per share. At the midpoint of this range it represents a 37% increase over last year's adjusted FFO. Additional details can be found in the outlook section of our earnings release.

And I will now turn the call over to Drew.

Thank you, Tony. We are pleased with the results from our portfolio. Not only is the portfolio performing well as a whole, but the brightest stars are properties that have lagged the recovery. With nearly all of our properties performing at a high level, combined with the inherent upside yet to be realized in our recent acquisitions, we are optimistic about the prospects moving forward.

Our focused asset management efforts continue to reap benefits as the revenue management strategies implemented across our portfolio have pushed ADR higher and increased our profit margins. We are also seeing increased guest service and satisfaction scores as we complete capital projects and enhance our product offering at several properties.

On the acquisition front we continue to monitor our high-priority target markets and track several assets. However, we are not in active negotiations for any new acquisitions at this time. Likewise, in terms of potential dispositions, we are not presently marketing any assets for sale.

We remain focused on managing our capital structure the goal of lowering our level of outstanding debt. Repayment of the $19 million bridge loan used to purchase the Atlanta asset is a high priority for us. As Dave noted, we increased our dividend once again last month and maintain a bias towards continued dividend growth. For the quarter our total return was 21.8%, ranking us first among all lodging REIT peers. We are also ranked first on a trailing 12-month basis with a total return of 83.5%.

All in all, this was an exceptional quarter. We outperformed the market from an operations perspective. We increased our dividend by 30%. Twice in the past four months we increased our annual guidance. We finished the quarter having exceeded our liquidity goals, and we continue to be the top-performing public hotel REIT in terms of stock performance.

The second quarter was the highest performing period in the Company's long history. We believe the coming quarters will see similar results.

We will now open the call up for questions.

(Operator Instructions) Carol Kemple from Hilliard Lyons.

Congratulations on a nice quarter. On your revenue and your occupancy and RevPAR guidance for the rest of the year it says in your press release that you look at the Smith Travel Research for the market segments in which you operate. Can you give us some kind of guidance on how much you expect occupancy to rise and ADR to rise for the second half?

I don't know that we are giving that guidance out, but I can tell you that I think you would look backwards at what we've just seen. I think that would be a good guidance on a go-forward basis. We have seen good growth on the rate side. We think that will continue. And I would say look at our present results in project that forward with [these] whatever.

Carol, you are asking where the markets are going over the next six months. I think in Drew's comments we are not seeing any changes that would alter significantly the past quarter or two in terms of market progression. At the same time, in many instances we've really outperformed on share. But on average the hotel has been running 100% of their indices, which is good. So we are matching what is a very attractive market growth right now.

And then you all mentioned that you didn't have any dispositions on the market. At this point are you thinking just about selling a property when you have another acquisition to redeploy it into or what are your thoughts on this position?

We have said in the past that there are a couple of properties that don't match our long-term goals and that we would like to sell them. We want to make sure that we do that when the opportunity is at its peak. And right now, we've got some issues going on at different properties that we are trying to position them for sale. But presently we are not ready to go yet.

Okay, thanks.

Matthew Dodson from JWest.

Congratulations on a great quarter. First of all, can you help me understand? Based upon your guidance on AFFO, you guys are expecting a big deceleration. Can you help me understand why that is?

A big deceleration in -- I'm sorry, Matt?

You guys did $0.71 and hit the midpoint of your guidance. You need to grow FFO in the back half or just need to have FFO of $0.44. So that's kind of the big, big --

We are a very seasonal business, Matthew. So it grows in relation to the quarter we are in. So some quarters are very strong, like the second quarter. Third-quarter is decent for us. Fourth-quarter is our slowest quarter of the year. So, it's just in relation to the seasonality. It's really not a deceleration. I would say that you are going to see a similar percentage increase. It's just it's a smaller number, so it doesn't show up as substantially as it did in the last quarter.

Okay, that's helpful. And can you talk about your acquisition opportunities? I believe that the REIT conference, Drew, you talked about maybe adding another property by the end of the year. Can you help me understand what's on your radar right now?

Well, we've said in the past that there's a couple markets that we would really like to be in -- Charleston, South Carolina; Nashville; Charlotte, North Carolina. Those are primo markets that we like to get into that are here in the Southland. So that's our focus. Our present focus is to come to a solution on this bridge loan that we have that we used to buy the Georgian Terrace in Atlanta. So, we need to solve that issue first. But we're poking around in those markets right now, trying to find an asset that we like. And as soon as we have something we can share with you, we would be glad to do that.

Okay, that's helpful. Again, congratulations on a great quarter and look forward to talking to you soon.

(Operator Instructions). This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Sims for any closing remarks.

Thank you all for joining us this morning. We are glad to have such great news to share with you. We look forward to talking to you in the near future. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.