10-Q: Sotherly Hotels Inc. Reports Increased Revenue and Net Income for Q1 2025

Sentiment:

Quarterly Report 15 May 2025 1:25 PM

Sotherly Hotels Inc. announces a rise in total revenue and net income for the first quarter of 2025, driven by increased occupancy and food and beverage sales.

Summary

Sotherly Hotels Inc. reported a 3.8% increase in total revenue for Q1 2025, reaching $48.3 million compared to $46.5 million in Q1 2024.
Net income for Q1 2025 was $4.7 million, a significant increase from the $1.3 million reported in Q1 2024.
The increase in revenue was attributed to a 3.9% rise in room occupancy and higher food and beverage revenues.
RevPAR increased by 5.0% to $129.74, driven by the increase in occupancy.
Hotel operating expenses increased by 3.5% to $35.4 million, primarily due to higher room and food and beverage expenses.
Interest expense increased by 11.4% to $5.5 million, mainly due to interest rate cap and financed ground lease expenses.
The company recognized a $3.9 million gain on involuntary conversion of assets related to insurance proceeds for damage to the Hotel Alba in Tampa from Hurricane Helene.
The company is working to extend or refinance mortgages maturing in June and October 2025, and May 2026, and may be required to reduce the level of indebtedness by an amount of (i) up to $3.9 million on the refinance of the Georgian Terrace, (ii) up to $13.9 million on the DoubleTree by Hilton Philadelphia Airport, and (iii) up to $10.3 million for the mortgage on the DoubleTree Resort by Hilton Hollywood Beach.
The company declared quarterly distributions on its Series B, C, and D preferred stock, payable on June 16, 2025.
As of March 31, 2025, the total arrearage of cumulative unpaid cash dividends on each of the Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock through May 12, 2025, are $8,052,550, $7,287,931, and $6,596,958, respectively.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive due to increased revenue and net income, but concerns remain regarding debt levels, preferred stock dividends in arrears, and upcoming mortgage maturities.

Positives

Increased revenue driven by higher occupancy and food and beverage sales.
Significant increase in net income compared to the same period last year.
Gain on involuntary conversion of assets boosted net income.
The company declared quarterly distributions on its Series B, C, and D preferred stock, payable on June 16, 2025.

Negatives

Increased interest expense due to interest rate cap and financed ground lease expenses.
The company is working to extend or refinance mortgages maturing in June and October 2025, and May 2026, and may be required to reduce the level of indebtedness by an amount of (i) up to $3.9 million on the refinance of the Georgian Terrace, (ii) up to $13.9 million on the DoubleTree by Hilton Philadelphia Airport, and (iii) up to $10.3 million for the mortgage on the DoubleTree Resort by Hilton Hollywood Beach.
As of March 31, 2025, the total arrearage of cumulative unpaid cash dividends on each of the Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock through May 12, 2025, are $8,052,550, $7,287,931, and $6,596,958, respectively.

Risks

The company's performance is susceptible to adverse market conditions in the geographic areas where its hotels are located.
The company faces risks associated with its level of indebtedness and its ability to meet debt covenants.
The company may be required to reduce the level of indebtedness by an amount of (i) up to $3.9 million on the refinance of the Georgian Terrace, (ii) up to $13.9 million on the DoubleTree by Hilton Philadelphia Airport, and (iii) up to $10.3 million for the mortgage on the DoubleTree Resort by Hilton Hollywood Beach.
The company's operations are seasonal, which can impact revenue and profitability.
The company has deferred payment and is in arrears on dividends for the Company's Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock for the periods ending September 30, 2022, December 31, 2022, March 31, 2023, June 30, 2023, September 30, 2023, December 31, 2023, March 31, 2024, June 30, 2024, September 30, 2024, December 31, 2024 and March 31, 2025.

Future Outlook

The company intends to continue to invest in hotel properties as suitable opportunities arise and may seek to access the equity in our hotels in Wilmington, North Carolina and Savannah, Georgia in a refinance of those mortgage in advance of their maturity date. The company is working to extend or refinance mortgages maturing in June and October 2025, and May 2026, and may be required to reduce the level of indebtedness by an amount of (i) up to $3.9 million on the refinance of the Georgian Terrace, (ii) up to $13.9 million on the DoubleTree by Hilton Philadelphia Airport, and (iii) up to $10.3 million for the mortgage on the DoubleTree Resort by Hilton Hollywood Beach.

Industry Context

Sotherly Hotels' Q1 2025 performance reflects a broader recovery trend in the hospitality industry, with increased travel demand boosting occupancy and revenue. The company's focus on upscale and upper-upscale full-service hotels positions it well to capture this demand, but it also faces challenges related to rising operating costs and interest rates, similar to other hotel REITs.

Comparison to Industry Standards

Comparing Sotherly Hotels to peers like Park Hotels & Resorts (PK) and Host Hotels & Resorts (HST), Sotherly's RevPAR growth of 5.0% is within the expected range for the current market conditions.
However, Sotherly's smaller size and higher leverage compared to these larger REITs make it more sensitive to changes in interest rates and economic conditions.
The company's focus on the Southern United States provides a geographic concentration that can be both a strength and a weakness, as it is more exposed to regional economic fluctuations and weather events compared to REITs with broader geographic diversification.
The company's focus on boutique hotels is similar to that of Pebblebrook Hotel Trust (PEB), but Pebblebrook has a larger and more diversified portfolio of independent hotels and resorts.

Related Party Transactions

Our Town Hospitality is currently the management company for each of our ten wholly-owned hotels, as well as the manager of our rental programs at the Lyfe Resort & Residences and the Hyde Beach House Resort & Residences.
As of March 31, 2025, an affiliate of Andrew M. Sims, our Chairman, an affiliate of David R. Folsom, our President and Chief Executive Officer, and Andrew M. Sims Jr., our Vice President Operations & Investor Relations, beneficially owned approximately 62.77 %, 6.21 %, and 15.0 % , respectively, of the total outstanding ownership interests of Our Town.
Mr. Sims, Mr. Folsom, and Mr. Sims Jr. serve as directors of Our Town.
The base management fees for each hotel under management with Our Town is 2.50 %.
Base management fees earned by Our Town for our properties totaled approximately $1.3 million and $1.2 million, for the three months ended March 31, 2025 and 2024, respectively.
Each OTH Hotel Management Agreement sets an incentive management fee equal to 10.0 % of the amount by which gross operating profit, as defined in the relevant management agreement, for a given year exceeds the budgeted gross operating profit for such year; provided, however, that the incentive management fee payable in respect of any such year shall not exceed 0.25 % of the gross revenues of the hotel included in such calculation.
Incentive management fees earned for the three months ended March 31, 2025 and 2024 , were $156,547 and $118,841 , respectively.
We employ Robert E. Kirkland IV, the son-in-law of our Chairman, as our General Counsel.
We also employ Andrew M. Sims Jr., the son of our Chairman, as Vice President Operations & Investor Relations.
Total compensation for these two individuals, including salary and benefits, for the three months ended March 31, 2025 and 2024 , were $241,564 and $187,999 , respectively.

Stakeholder Impact

Shareholders: Increased net income and the declaration of preferred stock dividends are positive, but cumulative unpaid dividends remain a concern.
Employees: The company maintains a 401(k) plan and an Employee Stock Ownership Plan (ESOP) for eligible employees.
Customers: The company aims to maintain its hotels in good repair and condition to provide quality service to customers.
Creditors: The company is working to extend or refinance mortgages, but may need to reduce indebtedness.
Suppliers: The company's operations generate demand for goods and services from suppliers.

Next Steps

The company intends to continue to invest in hotel properties as suitable opportunities arise.
The company is working to extend or refinance mortgages maturing in June and October 2025, and May 2026.
The company may seek to access the equity in our hotels in Wilmington, North Carolina and Savannah, Georgia in a refinance of those mortgage in advance of their maturity date.

Key Dates

Date	Description
August 20, 2004	Sotherly Hotels Inc. was incorporated in Maryland.
December 21, 2004	The Company commenced operations after completing its initial public offering and acquiring six hotel properties.
July 22, 2005	Acquisition date of DoubleTree by Hilton Jacksonville Riverfront.
August 9, 2007	Acquisition date of DoubleTree Resort by Hilton Hollywood Beach.
October 29, 2007	Acquisition date of Hotel Alba Tampa, Tapestry Collection by Hilton.
March 27, 2014	Acquisition date of Georgian Terrace.
November 29, 2016	The Companys board of directors approved the ESOP.
December 29, 2016	The Company entered into a loan agreement with the ESOP.
January 30, 2017	Acquisition date of Lyfe Resort & Residences.
March 1, 2018	Acquisition date of Hyatt Centric Arlington.
September 27, 2019	Acquisition date of Hyde Beach House Resort & Residences.
September 6, 2019	The Company entered into a master agreement with Our Town related to the management of certain of our hotels.
December 13, 2019	The Company entered into a sublease agreement with Our Town.
March 2020	Suspension of the preferred dividends during the pandemic.
April 16, 2020	Our Operating Partnership entered into a promissory note with Village Bank in connection with a PPP Loan and received proceeds of $333,500.
April 28, 2020	We entered into a promissory note and received proceeds of approximately $9.4 million under a PPP Loan from Fifth Third Bank, National Association.
May 6, 2020	We entered into a second promissory note with Fifth Third Bank, National Association and received proceeds of $952,700 under a PPP Loan.
April 2022	The Companys stockholders approved the 2022 Long-Term Incentive Plan.
December 9, 2022	The Company was notified it had received principal forgiveness in the amount of approximately $4.6 million.
January 24, 2023	The Company announced its intention to resume quarterly payments of dividends on its preferred stock.
February 3, 2023	The Company was notified it had received principal forgiveness in the amount of approximately $268,309.
January 28, 2025	We announced the declaration of a quarterly distribution to holders of our preferred stock with a record date of February 28, 2025 and a payment date of March 14, 2025.
February 7, 2024	Affiliates of the Company entered into loan documents to secure a $35.0 million mortgage loan on the Hotel Alba Tampa.
April 29, 2024	The Company entered into a loan amendment to amend the existing mortgage on the DoubleTree by Hilton Philadelphia Airport hotel with TD Bank, N.A.
May 3, 2024	An affiliate of the Company entered into an interest rate cap with a notional amount of $26.0 million with Webster Bank, N.A.
July 8, 2024	We secured a $26.25 million mortgage loan on the DoubleTree by Hilton Jacksonville Riverfront hotel located in Jacksonville, Florida with Fifth Third Bank, N.A.
August 14, 2024	We secured a $5.0 million second mortgage loan on The DeSoto hotel located in Savannah, Georgia with MONY Life Insurance Company.
September 2024	Hurricane Helene damaged the Hotel Alba in Tampa, Florida.
September 30, 2024	The lease was reassessed and remeasured as a finance lease as of September 30, 2024, which we record as a finance lease asset within investment in hotel properties, net and finance lease liability on our consolidated balance sheets.
October 29, 2024	We announced the declaration of a quarterly distribution to holders of our preferred stock with a record date of November 29, 2024 and a payment date of December 16, 2024.
January 28, 2025	We announced the declaration of a quarterly distribution to holders of our preferred stock with a record date of February 28, 2025 and a payment date of March 14, 2025.
March 31, 2025	End of the reporting period for the Form 10-Q.
April 28, 2025	We authorized payment of a quarterly distribution of $0.50 per share (and unit) of Series B Preferred Stock (and Series B Preferred Units) to holders of the Series B Preferred Stock (and Series B Preferred Units) of record as of May 30, 2025, to be paid on June 16, 2025.
April 28, 2025	We authorized payment of a quarterly distribution of $0.4921875 per share (and unit) of Series C Preferred Stock (and Series C Preferred Units) to holders of the Series C Preferred Stock (and Series C Preferred Units) of record as of May 30, 2025, to be paid on June 16, 2025.
April 28, 2025	We authorized payment of a quarterly distribution of $0.515625 per share (and unit) of Series D Preferred Stock (and Series D Preferred Units) to holders of the Series D Preferred Stock (and Series D Preferred Units) of record as of May 30, 2025, to be paid on June 16, 2025.
April 29, 2025	We announced the declaration of a quarterly distribution to holders of our preferred stock with a record date of May 30, 2025 and a payment date of June 16, 2025.
May 1, 2025	Three holders of partnership units in the Operating Partnership converted a total of 364,086 units for an equivalent number of shares in the Companys stock.
May 15, 2025	Date of the report.
May 30, 2025	Record date for quarterly distribution of preferred stock.
June 1, 2025	The mortgage on The Georgian Terrace in Atlanta, Georgia matures.
June 16, 2025	Payment date for quarterly distribution of preferred stock.
October 2025	The mortgage on the DoubleTree Resort by Hilton Hollywood Beach matures.
May 2026	The mortgage on the DoubleTree by Hilton Philadelphia Airport matures.

Keywords

Sotherly Hotels, hotel REIT, Q1 2025, financial results, hotel portfolio, RevPAR, occupancy, net income, mortgage debt, preferred stock, dividends

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