Andrew M. Sims, Chairman and Chief Executive Officer of Sotherly Hotels Inc., commented, 'Although we experienced slower than expected top line growth, our management team continued to increase average daily rate, leading to improved margins and resulting in solid first quarter results. During the first quarter 2013, adjusted FFO increased 80.2% and adjusted EBITDA increased 15.1% over the first quarter 2012.'
Sotherly Hotels Inc. (NASDAQ: SOHO), formerly MHI Hospitality Corporation (NASDAQ: MDH), a self-managed and self-administered lodging real estate investment trust (a “REIT”), today reported its consolidated results for the first quarter ended March 31, 2013. The Company’s results include the following*:
“Although we experienced slower than expected top line growth, our management team continued to increase average daily rate, leading to improved margins and resulting in solid first quarter results. During the first quarter 2013, adjusted FFO increased 80.2% and adjusted EBITDA increased 15.1% over the first quarter 2012.”
| Three Months ended | ||||||||||
| March 31, 2013 | March 31, 2012 | |||||||||
| ($ in thousands except per share data) | ||||||||||
| Total Revenue | $ | 20,190 | $ | 20,025 | ||||||
| Net loss attributable to the Company | (2,595 | ) | (2,294 | ) | ||||||
| EBITDA |
|
1,880 | 2,836 | |||||||
| Adjusted EBITDA |
|
4,622 | 4,014 | |||||||
| Hotel EBITDA |
|
4,848 | 4,448 | |||||||
| FFO |
|
(1,168 | ) | (663 | ) | |||||
| Adjusted FFO |
|
2,173 | 1,206 | |||||||
| Net loss per diluted share attributable to the Company |
$ |
(0.24 | ) | $ | (0.23 | ) | ||||
| FFO per share and unit |
|
(0.09 | ) | (0.05 | ) | |||||
| Adjusted FFO per share and unit |
|
0.17 | 0.09 | |||||||
(*) 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”, “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 increased 3.3 percent over the first quarter 2012 to $74.93 driven by a 4.1 percent increase in average daily rate (“ADR”).
- Hotel EBITDA. The Company generated hotel EBITDA of approximately $4.8 million during the first quarter 2013, an increase of 9.0% or approximately $0.4 million over the first quarter 2012.
- Adjusted EBITDA. The Company generated adjusted EBITDA of approximately $4.6 million during the first quarter 2013, an increase of 15.1% or approximately $0.6 million over the first quarter 2012.
- Adjusted FFO. The Company generated adjusted FFO of approximately $2.2 million during the first quarter 2013, an increase of 80.2% or approximately $1.0 million over the first quarter 2012.
- Common Dividends. As previously reported on April 25, 2013, the Company announced a quarterly dividend (distribution) on its common stock of $0.035 per share (and unit), payable on July 11, 2013 to stockholders (and unitholders) of record as of June 14, 2013.
Andrew M. Sims, Chairman and Chief Executive Officer of Sotherly Hotels Inc., commented, “Although we experienced slower than expected top line growth, our management team continued to increase average daily rate, leading to improved margins and resulting in solid first quarter results. During the first quarter 2013, adjusted FFO increased 80.2% and adjusted EBITDA increased 15.1% over the first quarter 2012.”
Financing Transactions
On March 22, 2013, the Company amended the original $8.0 million mortgage secured by its Doubletree by Hilton Brownstone-University hotel with its existing lender, Premier Bank, Inc. With the amendment, the loan’s principal amount was increased to $10.0 million. The mortgage’s interest rate will remain at 5.25% and the loan was amended to remove any prepayment penalty. Proceeds of the mortgage amendment were used to redeem approximately 1,902 shares of the Company’s Series A Cumulative Redeemable Preferred Stock for an aggregate redemption price of approximately $2.1 million plus the payment of related accrued and unpaid cash and stock dividends.
Balance Sheet/Liquidity
At March 31, 2013, the Company had approximately $10.3 million of available cash and cash equivalents, of which approximately $3.1 million was reserved for real estate taxes, insurance, capital improvements and certain other expenses or otherwise restricted. The Company had approximately $153.3 million in outstanding debt at a weighted average interest rate of approximately 5.55%. At March 31, 2013, the Company also had $7.0 million of availability under its existing Note Agreement with Essex Equity High Income Joint Investment Vehicle, LLC.
2013 Outlook
The Company reiterates its previous guidance for 2013 which is predicated on continued strengthening of the economy and expected improvements in hotel lodging industry fundamentals. These projections are based on estimates of occupancy and average daily rates that are consistent with calendar year 2013 forecasts by Smith Travel Research for the market segments in which the Company operates.
The table below reflects the Company’s projections, within a range, of various financial measures for 2013:
| Low Range | High Range | ||||||||
| Y/E Dec 31, 2013 | Y/E Dec 31, 2013 | ||||||||
| ($ in thousands except per share data) | |||||||||
| Total Revenue | $ | 87,425 | $ | 91,170 | |||||
| Net income (loss) | (2,131 | ) | 90 | ||||||
| EBITDA | 18,165 | 20,485 | |||||||
| Adjusted EBITDA | 20,065 | 22,285 | |||||||
| Hotel EBITDA | 22,465 | 24,435 | |||||||
| FFO | 7,164 | 9,384 | |||||||
| Adjusted FFO | 10,164 | 12,384 | |||||||
| Net income (loss) per share attributable to the Company | $ | (0.16 | ) | $ | 0.01 | ||||
| FFO per share and unit | 0.55 | 0.72 | |||||||
| Adjusted FFO per share and unit | 0.78 | 0.95 | |||||||
About Sotherly Hotels Inc.
Sotherly Hotels Inc., formerly MHI Hospitality Corporation, 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 Mid-Atlantic and Southern United States. Currently, the Company’s portfolio consists of investments in ten hotel properties, nine of which are wholly-owned and comprise 2,113 rooms. The Company also has a 25.0 percent interest in the Crowne Plaza Hollywood Beach Resort. All of the Company’s properties operate under the Hilton Worldwide, InterContinental Hotels Group and Starwood Hotels and Resorts brands. Sotherly Hotels Inc. was organized in 2004 and is headquartered in Williamsburg, Virginia.
| SOTHERLY HOTELS INC. | ||||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||||
| March 31, 2013 | December 31, 2012 | |||||||||
| (unaudited) | (audited) | |||||||||
| ASSETS | ||||||||||
| Investment in hotel properties, net |
$ |
175,453,822 |
$ | 176,427,904 | ||||||
| Investment in joint venture | 9,108,706 | 8,638,967 | ||||||||
| Cash and cash equivalents | 7,234,053 | 7,175,716 | ||||||||
| Restricted cash | 3,118,903 | 3,079,894 | ||||||||
| Accounts receivable, net | 2,304,793 | 1,478,923 | ||||||||
| Accounts receivable-affiliate | 7,105 | 8,657 | ||||||||
| Prepaid expenses, inventory and other assets | 2,389,409 | 1,684,951 | ||||||||
| Shell Island sublease, net | 420,343 | 480,392 | ||||||||
| Deferred income taxes | 2,387,586 | 2,649,282 | ||||||||
| Deferred financing costs, net | 2,225,584 | 2,406,183 | ||||||||
| TOTAL ASSETS | $ | 204,650,304 | $ | 204,030,869 | ||||||
| LIABILITIES | ||||||||||
| Mortgage debt | $ | 136,923,431 | $ | 135,674,432 | ||||||
| Loans payable | 4,025,220 | 4,025,220 | ||||||||
| Series A Cumulative Redeemable Preferred Stock, par value $0.01, 27,650 shares authorized, 12,396 and 14,228 shares issued and outstanding at March 31, 2013 and December 31, 2012, respectively | 12,395,744 | 14,227,650 | ||||||||
| Accounts payable and accrued liabilities | 8,488,698 | 6,786,684 | ||||||||
| Advance deposits | 940,531 | 625,822 | ||||||||
| Dividends and distributions payable | 456,684 | 389,179 | ||||||||
| Warrant derivative liability | 7,738,817 | 4,969,752 | ||||||||
| TOTAL LIABILITIES | 170,969,125 | 166,698,739 | ||||||||
| Commitments and contingencies | ||||||||||
| EQUITY | ||||||||||
| Sotherly Hotels Inc. stockholders’ equity | ||||||||||
|
Preferred stock, par value $0.01; 972,350 shares authorized, 0 shares issued and outstanding at March 31, 2013 and December 31, 2012, respectively |
— | — | ||||||||
| Common stock, par value $0.01; 49,000,000 shares authorized; 10,125,286 shares and 9,999,786 shares issued and outstanding at March 31, 2013 and December 31, 2012, respectively | 101,253 | 99,998 | ||||||||
| Additional paid in capital | 57,303,413 | 57,020,979 | ||||||||
| Distributions in excess of retained earnings | (30,128,693 | ) | (27,179,392 | ) | ||||||
| Total Sotherly Hotels Inc. stockholders’ equity | 27,275,973 | 29,941,585 | ||||||||
| Noncontrolling interest | 6,405,206 | 7,390,545 | ||||||||
| TOTAL EQUITY | 33,681,179 | 37,332,130 | ||||||||
| TOTAL LIABILITIES AND EQUITY | $ | 204,650,304 | $ | 204,030,869 | ||||||
| SOTHERLY HOTELS INC. | ||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||
| (unaudited) | ||||||||||
| Quarter ended | Quarter ended | |||||||||
| March 31, 2013 | March 31, 2012 | |||||||||
| REVENUE | ||||||||||
| Rooms department | $ | 14,249,959 | $ | 13,943,706 | ||||||
| Food and beverage department | 4,851,571 | 4,994,465 | ||||||||
| Other operating departments | 1,088,282 | 1,086,975 | ||||||||
| Total revenue | 20,189,812 | 20,025,146 | ||||||||
| EXPENSES | ||||||||||
| Hotel operating expenses | ||||||||||
| Rooms department | 4,013,733 | 3,950,486 | ||||||||
| Food and beverage department | 3,224,480 | 3,397,386 | ||||||||
| Other operating departments | 106,674 | 123,493 | ||||||||
| Indirect | 7,815,061 | 7,936,089 | ||||||||
| Total hotel operating expenses | 15,159,948 | 15,407,454 | ||||||||
| Depreciation and amortization | 2,052,821 | 2,179,963 | ||||||||
| Corporate general and administrative | 1,093,787 | 1,131,587 | ||||||||
| Total operating expenses | 18,306,556 | 18,719,004 | ||||||||
| NET OPERATING INCOME | 1,883,256 | 1,306,142 | ||||||||
| Other income (expense) | ||||||||||
| Interest expense | (2,680,547 | ) | (3,288,630 | ) | ||||||
| Interest income | 3,906 | 4,683 | ||||||||
| Equity income in joint venture | 469,739 | 265,794 | ||||||||
| Unrealized loss on warrant derivative | (2,769,065 | ) | (1,163,758 | ) | ||||||
| Net loss before taxes | (3,092,711 | ) | (2,875,769 | ) | ||||||
| Income tax provision | (263,055 | ) | (104,575 | ) | ||||||
| Net loss | (3,355,766 | ) | (2,980,344 | ) | ||||||
| Add: Net loss attributable to the noncontrolling interest | 760,850 | 685,989 | ||||||||
| Net loss attributable to the Company | $ | (2,594,916 | ) | $ | (2,294,355 | ) | ||||
| Basic | $ | (0.26 | ) | $ | (0.23 | ) | ||||
| Diluted | $ | (0.24 | ) | $ | (0.23 | ) | ||||
| Weighted average number of shares outstanding | ||||||||||
| Basic | 10,080,375 | 9,983,105 | ||||||||
| Diluted | 10,887,599 | 10,188,737 | ||||||||
|
SOTHERLY HOTELS INC. |
|
KEY OPERATING METRICS |
|
(unaudited) |
| The following table illustrates the key operating metrics for the three months ended March 31, 2013 and 2012, respectively, for the Company’s wholly-owned properties during each respective reporting period (“consolidated” properties). The table excludes performance data for the Crowne Plaza Hollywood Beach Resort hotel property, which was acquired through a joint venture in August 2007 and in which the Company has a 25.0% indirect interest. |
|
Consolidated Properties |
Three Months Ended March 31, | |||||||||||||
| 2013 | 2012 | Variance | ||||||||||||
| Occupancy | 65.6 | % | 66.1 | % | -0.7 | % | ||||||||
| ADR | $ | 114.19 | $ | 109.71 | 4.1 | % | ||||||||
| RevPAR | $ | 74.93 | $ | 72.52 | 3.3 | % | ||||||||
| SOTHERLY HOTELS INC. | ||||||||||
| RECONCILIATION OF NET INCOME (LOSS) TO | ||||||||||
| FFO, Adjusted FFO, EBITDA, Adjusted EBITDA and Hotel EBITDA | ||||||||||
| (unaudited) | ||||||||||
| Three months ended March 31, | ||||||||||
| 2013 | 2012 | |||||||||
| Net loss attributable to the Company | $ | (2,594,916 | ) | $ | (2,294,355 | ) | ||||
| Noncontrolling interest | (760,850 | ) | (685,989 | ) | ||||||
| Depreciation and amortization | 2,052,821 | 2,179,963 | ||||||||
| Equity in depreciation and amortization of joint venture | 135,101 | 137,815 | ||||||||
| FFO | (1,167,844 | ) | (662,566 | ) | ||||||
| Unrealized (gain)/loss on hedging activities(1) | (27,323 | ) | 14,681 | |||||||
| Unrealized loss on warrant derivative | 2,769,065 | 1,163,758 | ||||||||
| (Increase) decrease in deferred income taxes | 261,696 | 218,274 | ||||||||
| Loss on early extinguishment of debt(2) | 337,136 | 471,396 | ||||||||
| Adjusted FFO | $ | 2,172,730 | $ | 1,205,543 | ||||||
| Weighted average shares outstanding | 10,080,375 | 9,983,105 | ||||||||
| Weighted average units outstanding | 2,955,617 | 2,984,839 | ||||||||
| Weighted average shares and units | 13,035,992 | 12,967,944 | ||||||||
| FFO per share and unit | $ | (0.09 | ) | $ | (0.05 | ) | ||||
| Adjusted FFO per share and unit | $ | 0.17 | $ | 0.09 | ||||||
| Three months ended March 31, | ||||||||||
| 2013 | 2012 | |||||||||
| Net loss attributable to the Company | $ | (2,594,916 | ) | $ | (2,294,355 | ) | ||||
| Noncontrolling interest | (760,850 | ) | (685,989 | ) | ||||||
| Interest expense | 2,680,547 | 3,288,630 | ||||||||
| Interest income | (3,906 | ) | (4,683 | ) | ||||||
| Income tax provision | 263,055 | 104,575 | ||||||||
| Depreciation and amortization | 2,052,821 | 2,179,963 | ||||||||
| Equity in interest expense and depreciation and amortization of joint venture | 243,170 | 247,515 | ||||||||
| EBITDA | 1,879,921 | 2,835,656 | ||||||||
| Unrealized (gain)/loss on hedging activities(1) | (27,323 | ) | 14,681 | |||||||
| Unrealized loss on warrant derivative | 2,769,065 | 1,163,758 | ||||||||
| Adjusted EBITDA | 4,621,663 | 4,014,095 | ||||||||
| Corporate general and administrative(3) | 1,093,787 | 1,131,587 | ||||||||
| Equity in Adjusted EBITDA of joint venture | (685,586 | ) | (527,990 | ) | ||||||
| Net lease rental income | (87,500 | ) | (87,500 | ) | ||||||
| Other fee income | (94,323 | ) | (82,616 | ) | ||||||
| Hotel EBITDA | $ | 4,848,041 | $ | 4,447,576 | ||||||
|
(1) |
Includes equity in unrealized (gain)/loss on hedging activities of joint venture. | |
|
(2) |
Reflected in interest expense for the periods presented above. | |
|
(3) |
Excludes aborted offering costs. | |
Non-GAAP Financial Measures
The Company considers the non-GAAP measures of FFO (including FFO per share), EBITDA and hotel EBITDA to be key supplemental measures of the Company’s performance and should be considered along with, not alternatives to, net income (loss) as a measure of the Company’s performance. These measures do not represent cash generated from operating activities determined by GAAP or amounts available for the Company’s discretionary use and should not be considered alternative measures of net income, cash flows from operations or any other operating performance measure prescribed by GAAP.
FFO
Industry analysts and investors use Funds from Operations, FFO, as a supplemental operating performance measure of an equity REIT. FFO is calculated in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). FFO, as defined by NAREIT, represents net income or loss determined in accordance with GAAP, excluding extraordinary items as defined under GAAP and gains or losses from sales of previously depreciated operating real estate assets, plus certain non-cash items such as real estate asset depreciation and amortization, and after adjustment for any noncontrolling interest from unconsolidated partnerships and joint ventures. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by itself.
The Company considers FFO to be a useful measure of adjusted net income (loss) for reviewing comparative operating and financial performance because we believe FFO is most directly comparable to net income (loss), which remains the primary measure of performance, because by excluding gains or losses related to sales of previously depreciated operating real estate assets and excluding real estate asset depreciation and amortization, FFO assists in comparing the operating performance of a company’s real estate between periods or as compared to different companies. Although FFO is intended to be a REIT industry standard, other companies may not calculate FFO in the same manner as we do, and investors should not assume that FFO as reported by us is comparable to FFO as reported by other REITs.
EBITDA
The Company believes that excluding the effect of non-operating expenses and non-cash charges, and the portion of those items related to unconsolidated entities, all of which are also based on historical cost accounting and may be of limited significance in evaluating current performance, can help eliminate the accounting effects of depreciation and financing decisions and facilitate comparisons of core operating profitability between periods and between REITs, even though EBITDA also does not represent an amount that accrued directly to shareholders.
Hotel EBITDA
The Company believes that excluding the effect of corporate-level expenses and non-cash items, and the portion of these items that relate to unconsolidated entities, provides a more complete understanding of the operating results over which individual hotels and operators have direct control. We believe property-level results provide investors with supplemental information on the on-going operational performance of our hotels and the effectiveness of third-party management companies operating our business on a property-level basis. The Company previously reported hotel EBITDA as Adjusted Operating Income.
Adjusted FFO and Adjusted EBITDA
The Company presents adjusted FFO, including adjusted FFO per share and unit, and adjusted EBITDA, which adjusts for certain additional items including any unrealized gain (loss) on its hedging instruments or warrant derivative, loan impairment losses, losses on early extinguishment of debt, aborted offering costs, costs associated with the departure of executive officers and acquisition transaction costs. The Company excludes these items as it believes it allows for meaningful comparisons between periods and among other REITs and is more indicative of the on-going performance of its business and assets. The Company’s calculation of adjusted FFO and adjusted EBITDA may be different from similar measures calculated by other REITs.