Sotherly Hotels Q2 Earnings Call: Positive Property Results Offset by Broader Challenges
Sotherly Hotels (NASDAQ: SOHO) recently held its second-quarter earnings call, revealing a mixed financial performance. While certain properties delivered strong results, the company continues to face broader economic headwinds that are impacting overall revenue and profitability.
Strong Performances at Key Properties
Hyde Beach House stood out in Q2, surpassing expectations with a 12.7% year-over-year increase in Revenue Per Available Room (RevPAR). This growth was largely driven by an 18.5% rise in occupancy, reflecting the property’s resilience and appeal in a challenging market.
Similarly, Hotel Ballast in Wilmington posted a 1.3% increase in RevPAR, supported by a 2.7% gain in average daily rate (ADR). The hotel maintained a RevPAR index of 119.6% compared to its competitive set, highlighting its strong market position.
Debt Management Efforts
In response to the uncertain economic environment, Sotherly Hotels is taking proactive steps to manage its debt. The company has engaged a consultant to help negotiate loan extensions for The Georgian Terrace Hotel in Atlanta, aiming to enhance financial flexibility and long-term stability.
RevPAR and Revenue Declines
Despite strong individual property performances, the company’s overall portfolio experienced a 5.4% decline in RevPAR during Q2. This was attributed to a 3.5% drop in occupancy and a 1.9% decrease in ADR. These figures underscore the ongoing challenges in the hospitality sector, particularly in markets heavily reliant on government and business travel.
Impact of Reduced Government Travel
Reductions in government-related travel, especially due to budget cuts in the Department of Government Expenditures (DOGE) program, have significantly affected demand at properties in the Washington, D.C. metropolitan area. This decline in group and business travel has been a key factor in the company’s overall performance downturn.
Market-Specific Challenges
In Savannah, RevPAR fell nearly 10% year-over-year, driven by a decline in government business and weakening leisure travel demand. This highlights the regional variability in performance and the difficulties in maintaining consistent revenue across all markets.
Profitability and Revenue Pressures
Hotel EBITDA for Q2 came in at approximately $13.9 million, down 11.5% from the same period in 2024. Total revenue for the quarter was approximately $48.8 million, representing a 3.7% year-over-year decrease. These figures reflect the financial strain the company is under amid ongoing economic pressures.
Revised 2025 Outlook
Looking ahead, Sotherly Hotels has updated its full-year 2025 guidance. The company now expects total revenue to range between $185.2 million and $188.2 million, a modest 2.6% increase from 2024. However, Hotel EBITDA is projected to decline by 2.6%, falling between $45.3 million and $45.8 million. Adjusted Funds from Operations (FFO) are expected to range from $6.9 million to $7.5 million, or $0.34 to $0.37 per share.
The revised outlook reflects continued caution due to economic uncertainty and reduced government spending. However, the company remains optimistic about stabilizing group bookings and managing debt maturities effectively.
Conclusion
Sotherly Hotels’ Q2 earnings call highlights a company navigating a complex landscape. While standout performances at Hyde Beach House and Hotel Ballast offer reasons for optimism, overall declines in RevPAR, revenue, and profitability underscore the challenges ahead. The company’s focus on debt management and strategic planning will be critical as it works to stabilize operations and position itself for future growth.
Source: tipranks.com