管理層發言
Good morning everyone, and thank you for being with us for the Sotherly Hotels Q2 2025 Conference Call and Webcast. My name is Karl and I will be coordinating today's call. I would now like to turn it over to our host, Mack Sims, Vice President of Operations. The floor is yours.
Thank you, and good morning, everyone. If you did not receive a copy of the earnings release, you may access it on our website at 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 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'll turn the call over to Scott.
Thanks, Mack. I'll start off today's call with a review of our portfolio's key operating metrics for the second quarter. Looking at the second quarter results for the composite portfolio compared to 2024. RevPAR decreased 5.4%, driven by a 3.5% decrease in occupancy and a 1.9% decrease in ADR. Stripping out Tampa from the results due to continued impact of the property from Hurricane Helene, which struck Tampa in late September 2024, the second quarter's composite portfolio RevPAR decreased slightly better at 5% compared to the prior year, driven by a 2.3% decrease in occupancy and a 2.8% decrease in ADR. Year-to-date RevPAR performance for the composite portfolio represents a decrease of 0.5% from the same period in 2024 driven by a 0.9% increase in occupancy and a 1.5% decrease in rate. Once again, stripping out Tampa from the results, the composite portfolio delivered slightly better results, decreasing 0.1% compared to the prior year, driven by a 2.1% increase in occupancy and a 2.1% decrease in rate.
During the second quarter, our portfolio of hotels underperformed expectations against the backdrop of growing economic uncertainty and softening demand. While certain leisure destinations showed pockets of stability, overall performance was impacted by a pullback in government-related travel due to DOGE program spending cuts as well as more cautious consumer behavior in the face of persistent inflation and economic unease. DOGE-related spending cuts had a notable impact on group and business traveler demand at our Washington, D.C. MSA properties in Arlington and Laurel. Our hotels in Savannah and Atlanta, where association business represents a meaningful share of group room nights, were also adversely affected. Additionally, uncertainty around national tariff policies contributed to hesitancy among business travelers, particularly in several of our secondary and drive-to markets. These factors created a more challenging operating environment than we had anticipated, and we remain focused on disciplined cost management and targeted revenue strategies as we navigate the remainder of the year.
Despite these macroeconomic headwinds, our portfolio's ADR remained resilient, reflecting the strength of higher-end travelers as well as our overall pricing strategy. As previously noted, Hotel Alba in Tampa continued to experience some operational disruption in the second quarter due to elevated repairs following flood damage from Hurricane Helene. While restoration is ongoing, we are making steady progress and anticipate a full return to normal operations later this month. Importantly, our headline operating metrics, occupancy, ADR, and RevPAR reflect the temporary impact on a pre-insurance basis, while our reported revenue and profitability benefited from business interruption insurance proceeds, helping to mitigate the financial effects during the quarter. Looking at some highlights from a few key assets in the portfolio during the quarter. Hotel Ballast in Wilmington posted another solid performance in the quarter, exceeding budgeted expectations.
RevPAR increased 1.3% year-over-year, driven by a 2.7% gain in average rate partially offset by a modest 1.3% decline in occupancy. The hotel benefited from continued strength in group demand along with strong banquet and catering revenue. Hotel Ballast remained a market leader, finishing the quarter with a RevPAR index of 119.6% versus the competitive set. The DoubleTree Philadelphia Airport delivered a solid second quarter performance surpassing budget expectations despite ongoing softness in market ADR. While RevPAR declined 5.3% year-over-year, driven by a 6% decrease in ADR, this decline primarily reflects the absence of several one-time events that boosted results in the prior year. Looking ahead, we remain optimistic about the hotel's outlook, reported by improving group bookings and strengthening citywide demand drivers. The Hyde Beach House delivered strong results in the second quarter, outperforming both budgeted and prior year expectations.
RevPAR increased 12.7%, driven by an 18.5% gain in occupancy, partially offset by a 4.9% decline in ADR. Performance was bolstered by robust spring break leisure demand and increased demand related to the FIFA Club World Cup. Profitability remained solid, supported by diversified revenue streams, including centralized housekeeping and parking operations. Looking at portfolio profitability, the Hotel EBITDA margin declined by 2.5% year-over-year for the quarter, primarily due to RevPAR softness in Savannah, Atlanta, and Jacksonville. While these results came in below our expectations, we believe the outsized impact from DOGE-related spending cuts and tariff policies is temporary in nature. Encouragingly, our operators were able to maintain rate discipline despite these headwinds, signaling that demand among higher-income customers remains resilient. Looking ahead, we expect margin trends to remain relatively stable, supported by normalized staffing levels, steady menu offerings, and easing wage pressures across the portfolio.
Turning to corporate activity, we are proactively managing upcoming debt maturities tied to our assets in Atlanta and Hollywood. While broader debt market conditions remain uncertain, we are confident in our ability to work constructively with our lending partners. As disclosed in early July, we engaged a consultant that is in the process of helping us negotiate the loan extension with a special servicer for The Georgian Terrace Hotel in Atlanta. Looking ahead, we are also confident in our ability to address the upcoming maturity of the mortgage loans secured by the DoubleTree in Hollywood, Florida. We remain committed to a disciplined and conservative approach to capital management supported by a well-staggered maturity schedule that offers meaningful flexibility in the current financing environment.
Thank you, Scott. Reviewing performance for the period ended June 30, 2025. For the second quarter, total revenue was approximately $48.8 million, representing a decrease of 3.7% over the same quarter in 2024. Year-to-date, total revenue was approximately $97.1 million, representing a decrease of 0.1% from the same period last year. Hotel EBITDA for the quarter was approximately $13.9 million, representing a decrease of 11.5% from the same quarter in 2024. Year-to-date, hotel EBITDA was approximately $26.8 million, representing a decrease of 4.4% over the same period last year. For the quarter, adjusted FFO was approximately $4.8 million, representing a decrease of approximately $2.7 million from the same quarter in 2024. Adjusted FFO is projected in the range of $6.9 million to $7.5 million or $0.34 to $0.37 per share. We anticipate routine capital expenditures for the replacement and refurbishment of furniture fixtures and equipment will amount to approximately $7.1 million for calendar year 2025. A significant portion of our product improvement plans at the DoubleTree by Hilton Philadelphia Airport and the DoubleTree by Hilton Jacksonville Riverfront will occur during the year with anticipated capital expenditures related to both these projects totaling $5.6 million for calendar year 2025.
Thank you, Tony. Good morning, everyone. In the second quarter, we experienced a modest reduction in hotel demand across the portfolio with the majority of our competitive set properties reporting year-over-year RevPAR declines. This softening aligns with broader macroeconomic headwinds, including elevated interest rates and the continued impact of tariff-related policies. Despite these pressures, business transient demand remained relatively steady with only a slight year-over-year dip, underscoring the resilience of this high-value segment. Group booking pace for the remainder of the year also remains intact with only minor reductions compared to 2024, supporting our expectation for a gradual recovery as market conditions stabilize. From a macro standpoint, recent federal policies introduced a higher level of uncertainty, contributing to reduced near-term visibility across the lodging sector.
This backdrop has weighed on consumer sentiment and resulted in softer overall demand. Government-related travel has also slowed, particularly at our hotels in the Washington, D.C. area, Savannah, and Atlanta markets, where government and association business represent a meaningful share of revenue. We believe tariff-related policies have had a direct impact on the leisure segment, particularly among price-sensitive and international travelers. Inflationary pressures and rising costs on consumer goods have constrained discretionary spending, leading to shorter booking windows, lower average lengths of stay, and more cautious travel behavior overall. These effects were especially pronounced in our drive-to leisure markets where weekend demand has historically been strong. Savannah, in particular, saw an outsized impact during the quarter with RevPAR down nearly 10% year-over-year. Despite these results, we remain confident in the long-term fundamentals of the Savannah market and expect performance to recover as macro pressures ease.
On the group side, total production declined 7% in the second quarter. That said, group pace for the remainder of the year remains healthy, and we have not seen the widespread cancellations that typically accompany more severe economic downturns. In some markets such as Arlington, where second quarter group revenue increased 42% over the prior year, our operators were able to offset declines in government business by backfilling with additional group bookings. As overall demand trends for our portfolio have moderated, we're approaching the back half of the year with a more measured outlook. Still, we remain confident in our operators' ability to adapt quickly and execute targeted sales and revenue strategies to navigate the current environment effectively. As Scott referenced in his prepared remarks, the mortgage markets continue to challenge borrowers as loans mature and refinancing assets remain difficult.
We continue to navigate this environment with loan restructuring, extensions, modifications, and asset sales. For example, as we recently disclosed, we have entered into a purchase and sale agreement to sell our parking garage in Atlanta adjacent to The Georgian Terrace hotel. This sale, coupled with a new mortgage loan on the hotel, will allow for the extinguishment of the existing CMBS loan that matured in the second quarter. We further expect a change in interest rates to provide a much-needed lift to commercial real estate lending. Sotherly will benefit from such developments as well as an environment characterized by more stable macroeconomic conditions. As we look toward the second half of the year, we remain cautiously optimistic about the overall trajectory of the lodging industry. While elevated interest rates, persistent inflationary pressures, and geopolitical uncertainty continue to weigh on consumer and corporate sentiment, we're taking a more measured view of the near-term pace of hotel demand.
That said, our portfolio is well positioned to navigate these challenges. We believe our concentration in upscale and upper upscale assets will allow us to outperform the broader market in 2025. Booking trends remain relatively healthy, and at this time, we anticipate full year 2025 RevPAR for the actual portfolio to be approximately flat compared to last year. Supported by continued proactive asset management, we remain confident in our ability to deliver strong relative performance in a complex operating environment. And with that, operator, we can open the call up to questions.
分析師問答
Our first question comes from Alexander Goldfarb from Piper Sandler.
Dave, I have a few questions here. The first one, though, I was interested, I think if I heard you correctly, you said Savannah was the hardest hit hotel in the quarter. And I can understand Arlington and Laurel given DOGE. But can you just talk a little bit more about Savannah? Maybe there's more government there than I thought. But that comment stuck out to me for why that hotel would have been the hardest hit, again, if I heard you correctly.
Well, I don't think I said it was the hardest hit; it had some outsized negative impact. The quarterly RevPAR was down significantly in the market. Part of it was transient travel was off. And we do have surprisingly a lot of government business that was impacted by the DOGE-related activities in the quarter. And Scott, do you have anything to add?
Yes, it's twofold. I think leisure travel in Savannah has peaked for now. We’ve witnessed substantial growth from the leisure segment over the past five years, but it seems we’ve reached a limit for the time being. On the group side, as Dave mentioned, we were somewhat surprised by how the DOGE cuts have played out. It's about how far the funding goes and the kind of group business we usually see at hotels outside of the D.C. metropolitan area that rely on government-related funding. In Savannah, Atlanta, and Jacksonville as well, we are observing group cancellations or a reduction in certain groups that are linked to government funding, which isn’t typically seen as government-related business. This includes educational associations and similar organizations that might not immediately come to mind as government groups but ultimately receive their funding from the government.
Okay. Along those lines, could you provide an overview of your portfolio in terms of the percentage that comes from government? Is it around 20%, 30%, or 10%? If we were to categorize your portfolio into government, group business, and transient segments, what would the distribution look like among those three areas?
Yes, Alex. I don’t want to give you a firm number because again, traditionally, we would have a firm government group number, but based on what we're seeing — and that's probably in the high single digits, low double digits — mainly focused on those D.C. hotels that truly represent government group-related business and a little bit throughout the rest of the portfolio. What we're seeing now are our group bookings that nobody would ever tie them directly to the government, and they aren't officially government tied, just the funding. The way the fund has been coming through the government and have been restricted, you've just seen a pullback in near-term booking pace or lead generation. So again, I don't think it's necessarily that people have gotten their funding cut; it's that groups are hesitant to proceed forward until they have a clear picture of what all funding they're going to be getting in the foreseeable future.
Yes, Alex, it's like having a private consulting firm that books — has a group booking at a hotel, but all of its revenues come from the federal government. When they have a pullback, then that corporate account cancels its booking, but it's all ultimately tied to the government. However, it's difficult to disaggregate all that and give you a percentage number.
Yes. And I think the final piece on there, again, we're not really seeing cancellations per se. It's been either groups that follow through with their meetings but are more hesitant to overspend on banquet and catering like they have traditionally done. I think we saw a lot of that impact in Savannah on a year-over-year basis. Last year, they bought the kitchen sink in terms of banquet and catering amenities. This year, they spent less because they weren't sure about their full funding outlook or that lead generation has temporarily stalled for the year bookings. I think that's certainly a temporary impact that's going to spur back up here.
And then your guidance reduction; does that reflect further government-related pullback? Or do you think that the level you’re at in the second quarter is the new level?
From a revenue perspective, that reflects our most recent forecast for the entire year. So we've reforecasted the entire portfolio for the balance of the year with all the trends that we're currently seeing, both on group and leisure sides of the equation. I think that's our best outlook based on the trends we're currently observing.
But directionally, Scott, do you think between government group and leisure, do you expect they'll maintain second-quarter annualized pace or are you expecting further declines across all three categories, maybe just government? I'm just trying to get a little bit of depth on those three different segments for the balance of the year.
Yes. We're not expecting further pullback necessarily. We actually have pretty solid group bookings for the back half of the year. So we're seeing some growth from a group perspective for the back half of the year on a year-over-year basis.
And what about leisure and government?
Government, I think, has declined, and we assume it's going to kind of stay steady state for the balance of the year until things unlock. Leisure is a market-by-market analysis, but we're not expecting that to further grow beyond what we've seen thus far.
Okay. So really, you expect group to rebound?
That's right. Unfortunately, the second quarter was a step backward on a year-over-year basis for group. We expect that to step forward on a year-over-year basis for the second half of the year based on the bookings we already have.
Okay. Perfect. And then going on sources of capital. Obviously, you announced the parking garage at Georgian Terrace; are there other asset sales planned, whether it's perhaps a hotel, but more likely another type of parking lot or something that’s tangential to a hotel that you may be able to sell?
Yes. There are options that we are always looking at. So the parking garage in Atlanta is a good example of an option like that, but also we have a lot of equity in some of our hotels that we can tap into and we plan to tap into for refinancing to raise liquidity. There are things here and there, whether it's a parking garage or a parking lot in various hotels or sale of assets may be in line if that's necessary for the company, although we certainly don't want to do that.
Okay. And then just final question. I appreciate your time. In other property sectors, even like office, we're seeing the mortgage market come back for office, not all office, but obviously, if it's a good quality asset. Presumably, hotels have fully recovered since the pandemic; why is the mortgage market for hotels still challenged? Is it that the lenders still don't view the industry as recovered? Or was it just LTVs back in the day were still meaningfully higher than where terms are today? I'm just trying to get a better sense of why hotels would still be challenged in the debt markets.
Alex, we look at that all the time and lenders, whether they are conduit lenders, insurance companies, or banks, debt yields are still stubbornly high, at least compared to the debt yield climate that existed before the pandemic. There are still several hundreds of basis points of variance between the underwriting that occurred prior to the pandemic and what we're seeing now. Interest rates are obviously elevated, but they have come in, and we expect them to come in further. Debt service coverage ratios and covenants are simply a lot tougher than they used to be, and it’s the lenders' caution that creates that environment. So you add up all of these various factors, and the lodging industry is still either not in favor with the lending community or just needing to recover from a more buoyant lending environment that occurred 5 or 6 years ago. We're seeing signs of stabilization there, and we think that will continue.
We currently have no further questions. I will now hand it back to David Folsom for any final remarks.
Thank you, operator, and thank you to everyone who dialed in today. I wish everybody a good day and we'll talk to you next quarter.
As we conclude today's call, we'd like to thank everyone for joining. You may disconnect your lines.